As a business owner, it’s vital that you create a distinct separation between your personal and business finances. This is important to protect your credit and assets. It should also be a top priority because it’s the only way to manage your business finances correctly. While this might sound challenging for a new business owner, it’s simply a process like everything else. Here are seven ways to separate your personal and business finances.
How to Separate Your Personal and Business Finances
Don’t worry. Setting up separate business finances isn’t as difficult as it seems. Here is a great step-by-step process for separating your personal and business finances in seven steps.
1. Get a Business EIN
The first step you should take to separate your business finances is to get an Employer Identification Number (EIN). This is a nine-digit number assigned to your business by the IRS, which you will use to open a business bank account, file your business tax returns, secure business credit, and much more.
2. Register Your Business Entity
Once you have your EIN, it’s time to set up your official business entity. Depending on the type and size of your business, you can establish an LLC or corporation, which makes your business a separate legal entity. You may wish to consult with a professional to determine what business entity is right for you.
3. Open a Business Bank Account
You won’t be able to separate your business and personal finances if you are putting all of your money in the same bank account. As soon as you create your business entity, choose a bank or credit union and open your business checking account.
4. Track Your Business Expenses
As a business owner, you need to stay organized with your accounting, meaning it’s important to track and document your expenses. Fortunately, there are now plenty of small business accounting solutions that will automatically record and track these items for you, making it easier to keep your personal finances separate from business finances.
5. Pay Yourself a Salary
It’s important that business owners pay themselves a regular salary instead of just pulling money out of the business bank account as it is needed. By paying a regular salary, you establish a record of separation between yourself and the business.
6. Get a Business Credit Card
Even if you pay for everything in cash or don’t like to use credit, it makes sense to get one or two business credit cards. (You certainly don’t want to put any business expenses on a personal credit card.) When you get a business credit card, this helps you establish a business credit profile, which you can use to apply for loans and access capital when you need it.
7. File Your Business Tax Returns
When you follow all of these other recommendations, it will be much easier for you to keep your business and personal tax returns separate. Depending on your business entity, like an S-Corp, there might be some pass-through income, but business expenses and income will still be separate from personal income.
Schedule a Consultation With CAB Capital
Now that you know how to separate your personal and business finances, you can start on the road to small business success. If you need more working capital, find out how we can help. CAB Capital helps small businesses achieve their goals by locating alternative lending solutions that are flexible, affordable, and convenient. Reach out to us today for an initial consultation.