Let’s get real here – many solopreneurs I work with mix their business and personal finances. If you’re running a one-person show, a side-hustle, or a business that has few transactions, it might seem sensible. Why open the extra account? It might also be difficult to put the time in to really untangle everything. Oftentimes, expenses and income seem to land in a gray area between business and personal.
While this strategy might seem like it saves you time and money, separating your business finances from your personal finances is much more profitable in the long run. Here are a couple reasons for that:
Simplify Your Record Keeping
You want all the numerical data from your business available with a few clicks. If you keep your personal and business finances separate, it’s much more possible to simplify your record keeping and make that possible. Here are a few pieces of info you have much better access to if you do it this way:
- How much income your business is making and whether it’s supporting itself
- All information needed for tax time. Having your accounts separated and that information readily available means you’re less likely to give up and overpay on your taxes.
- Which offerings and times of year are most profitable for your business.
- What your business is spending on and whether you’re getting a return
Along with having clear ways to see all of these metrics, you can also deeply reduce your stress level when your records are simple. The value of this is not to be underestimated!
Learn About Your Business & Boost Your Profit
As you can imagine, having easy access to the information above can do wonders for your bottom line. You can tap into yearly or seasonal income cycles and focus your offerings to generate more revenue. You can also make business spending decisions much more easily, and learn what investments can help your business become more profitable.
If your business is currently not making enough money to support itself, you can look through your records to understand why this is, and come up with solutions. Lastly, having a clear idea of how much you need to pay for taxes can prevent you from overpaying, and lead to more profit in the long run.
Your financial metrics tell the story of your business. Separating them from your personal banking makes it so much more simple to check in on your business finances.
Get Clear on How Much You Need to Make
Aside from providing valuable information about the state of your business finances, separating them from your personal accounts will also clarify some personal finance questions for you. You’ll be able to clearly see how much money you’re spending on your lifestyle every month.
This can help you determine what you need to pay yourself from your business. Creating personalized income goals according to what you value in your life can make running your business more personally meaningful.
Take This to The Bank
Now that I’ve made a case for separating your business and personal finances, let’s go over two different ways you can do this. In the beginning of this article, I mentioned that some solopreneurs think its sensible to avoid opening another account. It’s true that this can help you bypass banking fees associated with business accounts.
Sometimes I work with clients who are just starting a small side-hustle. I may advise them to set up a system that helps them keep a comfortable distance between their personal and business finances, without actually opening another account. Usually, this involves opening a sub-savings account at your bank, and creating a detailed money map and tracking spreadsheet.
For people with larger businesses and more transactions, it’s better to open a separate account. Read the section on banking in my free eBook, 3 Essential Steps to Starting a Business, for more thoughts on this setup process. I hope this article helped clarify the many benefits of keeping your business and personal finances separate. Happy banking!
Image: Tetiana SHYSHKINA