As a business owner, establishing a distinct separation between your personal finances and your business finances is pivotal for protecting your own assets and credit. This above all things should be a top priority for managing money the right way.
An incorporated business is treated as a separate legal entitiy and it must be treated as such. For starters, separation between personal and business finances should be on the top of the list. Doing so will prevent the co-mingling of funds, accounts, and assets which protects the integrity of the corporate veil.
Here are five ways to separate your personal and business finances.
Open a small business bank account – To keep personal funds and business funds completely separate you must have two different bank accounts. On personal checking account and the other a small business checking account. This sets you up for clean and accurate bookkeeping so when tax time rolls around it will make it easy for your accountant.
Apply for a DUNS Number - A DUNS number is the most widely used identifying number for businesses in the United States. It enables you to build a business credit identity for your company completely separate from your individual credit profile.
Create a corporate presence online – A company web site and dedicated email address is expected in today’s business environment. Your business should have its own dedicated IP address separate from your own personal web sites.
Set up utility accounts in the company’s name – The utility services you pay to operate your business should be established in your company’s name. This includes business phone lines, cell phone services, internet service, cable services, etc. These service accounts are the expenses your business pays on a monthly basis so it’s important to handle them accordingly.
Apply for credit in the company’s name – When applying for credit with a supplier or vendor be sure to submit your company information on the credit application. With trade credit; suppliers, vendors and retailers will extend financing terms ranging from net 10 to net 60 days. This will enable your business to establish credit history plus buy products and services on credit while deferring payment for 10-60 days.
Acquire a business credit card – The primary tool for separating personal and business charges is with a business credit card. Business credit cards allow you to track your business expenses, control spending and build your business credit. Some cards even offer special rewards and perks.
Whether you’re planning to start a business or own an existing business, these are just some of the ways business and personal finances are kept separate.
Failing to separate your personal and business finances leads to an accounting nightmare for your bookkeeper. In order to protect your personal assets, it’s critical to separate your business expenses, accounts, and finances from you personally, or you risk forfeiting the legal protections that entity structures offer.