Effective money management is one of the greatest challenges of the small business owner.
Your business stream may have been uneven in the early days, what with start up expenses and operating costs. You may even have been operating at a loss. As your business grew, however, it went from being a sideline to your primary means of income.
It is easy for your business and personal finances to become mixed up, especially if you work by yourself or have only a few employees, but it is important to keep these distinct and separate from one another. Here are some tips for doing so.
Why Should you Separate your Finances?
The most important reason to do so is for tax purposes. You may be entitled to certain deductions for your business expenses that are not available to individual taxpayers, such as for your home office and for mileage on your vehicle.
By the same token, you may need to pay taxes on your business that the individual taxpayer is excluded from. Keeping your finances separate is the only way to make sure that you follow the applicable tax laws and receive the advantages to which you are entitled.
Separating your finances will also make creating a paper trail easier. for example, if you wish to obtain a grant or a loan you will need to be able to show certain financial statements that indicate the performance of your business. Separating your business and personal finances will make it much easier to show which of your expenses are a part of your business operations.
Keeping your finances separate can also help you to figure out how to grow and develop your business. You will be able to determine those areas in which your business is excelling as well as those on which you need to focus. You will be able to generate more accurate and targeted reports and financial statements that show exactly how your business is performing in certain areas.
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