3 budgeting tricks for personal and business finances
By BuildMyBiz on January 7th, 2015
January 7, 2015 in Finance and Accounting
lmenDrawing a line between personal and professional finances can be difficult. After all, a company is a major part of the owner’s life, especially if the business is his or her passion. Here are three small business finance tips to ensure that budgets are kept separate:
1. Physical separation between budgets
Entrepreneur suggested having separate bank accounts for different funds. Not only will this attain a clear-cut divide, but it can provide structure to companies. Any document management software used for the business should also have separate accounts for both personal and small business finances if they use the same system for both lifestyles.
Having a credit card to use exclusively for work-related purchases will make keeping track of expenses easy. Additionally, the credit card can be shown to the IRS if the company is audited. Overall, having a separate bank account looks professional.
“If there’s ever a question as to whether it’s a hobby or a business, the IRS looks to see if you have a separate checking account,” Richard Salmen, a certified financial planner with GTRUST Financial Partners in Overland Park, Kansas, told Entrepreneur.
In addition, the source said that creating a limited liability company or S Corp can ensure financial stability within a business. The risk of a business being sued is always a possibility, and advisors such as attorneys, insurance agents, CPAs, and financial planners can help reduce your potential liability.
2. Planning ahead
BusinessDay highlighted planning ahead when recommending strategies for isolating budgets. Creating an emergency fund for an unforeseen problem can help a business owner avoid having to borrow money from company funds. The source also said that owners should store the emergency fund in a separate account that is easily accessible.
Having separate financial plans for a business and personal life, respectively, can also create better organization. And having a solid business structure can encourage creativity and efficient planning. The source added that tracking expenses according to the goals attached to them can also determine where budgets can be cut.
Being dependent on one source of income to reach a goal is not the best way to ensure success. BusinessDay highlighted having diversity in a business plan is key to ensuring all bases are covered should something unexpected arise. Being optimistic about a business venture isn’t bad, but things happen and expectations fall through. Betting a lot of money on one aspect is a risk that can shatter a budget.
3. Staying organized and ready
Staying organized is important, as it prepares anyone for the worst if it should happen. Having updated software and paperless document management systems can keep a company on track and ready for the IRS. Keeping these records intact can also ensure the business is ready for something like an audit, Entrepreneur mentioned.
Salmen recalled a story of a business owner who used a home office for a photography business, but was losing money. He warned the owner of the risk of an audit and recommended a home office deduction, but it was too late for the man to take Salmen’s advice, and he was audited.
“People are way too afraid to take the home office deduction because they don’t want to be audited, but take it if it’s legitimate,” Salmen told Entrepreneur. “The key is that it has to be used exclusively for business. You can’t have a day bed in it for visitors.”
Ensuring success in both business and personal life means having the discipline to keep the budgets separate and track every penny. The best way to be successful may not be the most comfortable, but it’s better than risking all of the finances someone worked hard to have in the first place.
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