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Are Your Business and Personal Finances Mixed? Here’s Why You Need to Separate Them

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!

Angela

Image: Tetiana SHYSHKINA

A Few Easy Tips to Save Money by Picking Up the Phone

notebook phone and glasses on tabletop

I saved myself $200 with two phone calls in the past two days. Both took only 10 minutes and I made one while walking my dog. They were very little effort, but with a nice payoff.

Yesterday I made a call to my insurance company to let them know our 18 year-old daughter has just left for college without the car. She is still a covered driver, but since she’s not a daily driver our premium was reduced by $160 until our upcoming renewal.

Today I made a phone call to a rental car company to dispute a gas charge of $45. After hearing my explanation, they agreed to refund the charge.

I could have easily skipped making these calls, but I’m glad I didn’t. Sometimes saving money is as easy as picking up the phone. Think about your finances for a moment, and ask yourself – do you have any calls to make? Here are a few other tips to save money now or each month:

Check to see if you’ve received any wrongful overdraft charges or fees from your bank – many make mistakes all the time. Dispute these charges and get back what they owe you.
Call and find out how to avoid monthly fees from your bank.
If you’re paying a lot in credit card interest, remember that you have the right to call and negotiate new interest rates, or transfer your balance to an entirely different card. Look for one that has an introductory 0% APR.
Cancel unused club memberships and subscriptions for that gym you never use and that magazine you don’t read.
Take a look at your cell-phone bill and see if there are any services you don’t use and can stop paying for.

There are lots of little shortcuts and loopholes to saving money – just take a look at what you’re paying for and you’ll surely find something. A little extra cash is worth a few minutes on the phone! I hope you enjoyed these money saving tips and can put them to good use.

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