181: Accounting For Business And Personal Funds Whether You Are Starting A Business Or Side Hustle, A Solopreneur, Entrepreneur, Mompreneur, Freelancer, Bookkeeper, Virtual Assistant, Business Owner
181: Accounting For Business And Personal Funds Whether You Are Starting A Business Or Side Hustle, A Solopreneur, Entrepreneur, Mompreneur, Freelancer, Bookkeeper, Virtual Assistant, Business Owner, Or Self-Employed
One of the biggest mistakes business owners make when they are starting their business is to mix their business and personal funds together. It may seem like this is the easiest and most straightforward way to manage their business finances, but in reality, it creates additional work and complexity for the business owner, which is a costly mistake. Your time is valuable, and you don’t want to spend hours trying to figure out what was a business transaction versus a personal transaction, and if you have an accountant or bookkeeper doing your bookkeeping, you’ll find yourself paying additional fees to have them sort through this issue as well. In today’s podcast episode, I will give you the top reasons you need to separate your business funds, when the best time to create separate accounts is, and how to develop procedures to easily separate your business and personal funds. Keeping your business funds separate from your personal funds is recommended and required for many businesses. It doesn’t matter if you are a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA, listen in to today’s podcast episode so that you know exactly what you need to do to keep your business and personal funds separate. I will even cover how you can pay yourself from the business the right way and not get yourself into trouble when it comes to tax time. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
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Show Notes:
One of the biggest mistakes business owners make when they are starting their business is to mix their business and personal funds together. It may seem like this is the easiest and most straightforward way to manage their business finances, but in reality, it creates additional work and complexity for the business owner, which is a costly mistake. Your time is valuable, and you don’t want to spend hours trying to figure out what was a business transaction versus a personal transaction, and if you have an accountant or bookkeeper doing your bookkeeping, you’ll find yourself paying additional fees to have them sort through this issue as well. In today’s podcast episode, I will give you the top reasons you need to separate your business funds, when the best time to create separate accounts is, and how to develop procedures to easily separate your business and personal funds. Keeping your business funds separate from your personal funds is recommended and required for many businesses. It doesn’t matter if you are a self-employed individual, a solopreneur, entrepreneur, mompreneur, freelancer, small business owner, a remote, virtual, online, or in-house bookkeeper, or a virtual assistant or VA, listen in to today’s podcast episode so that you know exactly what you need to do to keep your business and personal funds separate. I will even cover how you can pay yourself from the business the right way and not get yourself into trouble when it comes to tax time. These tips are essential whether you are using a computerized software system like QuickBooks, Xero, Wave, or FreshBooks for your business finances; or doing your bookkeeping manually with an Excel spreadsheet or even a Google Document…
Welcome Back… Keeping your business and personal funds separate is a must whenever you have a business. I’ll even take this a step further and say that if you have multiple businesses, you need to keep each of your business entities separate from each other as well. As soon as you start to have income or expenses in any business that you are starting, you need to have separate bank accounts, and you need to keep your personal funds separate from these funds. If you are just getting started with your business or your side hustle, make sure you set up a separate checking account and a separate credit card for your business as soon as you can. If you are listening to this podcast, and you have already started your business, and you are still using your personal accounts for your business, I would highly recommend you get your business accounts set up as soon as possible.
You might think it is just so much more simple to use your existing personal bank accounts. I agree that not having to open a separate bank account for your business would be easier, but as your business grows and you have more and more transactions, I promise when you have just your personal bank account, this will cause you frustration, legal and tax issues as well as a lot of wasted time. Take the time, set up your business accounts as soon as you start having money coming in and going out of your business, and you will be set for the duration of your business.
Let’s talk about a few of these issues. First, I’ll touch on the amount of time you waste when you have your personal and business accounts combined. When you have a business, you need to account for all the money coming in and going out of your business. This, in a nutshell, is your bookkeeping. Imagine for a minute that you have all of your business and personal income and expenses in your personal account. You will need to sift through all of your transactions just to find which ones are specifically for your business so that you can have an accurate accounting of your business finances. If you have many personal transactions, this could take up a fair amount of time. More importantly, I always recommend you reconcile your accounts, and when you are utilizing a computerized software system for your bookkeeping, you would need to record all of your personal and business transactions so that you can reconcile your account. Each of your personal transactions are transactions that you would not need to record if you had a separate business account and only used this account for your business transactions. Not only will you save time by separating your business and personal funds, but if you hire someone to help you with your bookkeeping, by keeping your personal funds out of your business accounts, you will save money since your accountant or bookkeeper does not need to record each of your personal transactions in addition to your business transactions. I have had business clients that I worked with who mixed their personal and business funds together, and when I was recording their transactions, the personal transactions made up more than 75% of their transactions. Their monthly billing from me could have been reduced significantly if they had kept their business and personal funds separate.
Generating reports for having your tax return prepared for your business is also a much easier process when you have your business and personal funds separated. Not only will you be able to generate the financial statements that you need to have your tax return prepared with all of your business transactions in one place, but you will also be setting yourself up for success if the IRS ever audits you. When you are commingling your business and personal funds, the IRS may want to not only look into your business transactions further, but they may also want to dig deeper into your personal transactions as well. This could open up a personal tax audit and cost you additional time and money.
Speaking of commingling business and personal funds, when this is done, there is a chance that you are piercing your corporate veil if you have set your business entity up as a corporation. Most businesses will set up a separate corporation to reduce liability and keep their personal assets out of the business. When you commingle your business and personal funds, you could be opening your business up for additional liability issues when you have pierced your corporate veil. Make sure that you set up separate bank and credit card accounts so that you can keep your original intentions when you decided to incorporate your business.
When you have your business and personal funds separated, it is easier to see an accurate picture of your business cash flow. You can easily monitor your cash flow when you only have your business income and expenses flowing in and out of your business checking account. If you add personal income and or expenses into this account, you take away the simplicity of knowing how much cash you have available just from the activity of your business.
One question I often get from clients when they diligently separate their business and personal funds is how they should pay themselves or take money out of their business to pay for their personal expenses. I’ll start by saying that if your business is set up as an S-Corporation, you should be paying yourself a reasonable wage from the corporation. This would be done by processing payroll for yourself and withholding the appropriate payroll taxes. These payroll expenses are included on your business's profit and loss or income statement as an expense. If your business is a sole proprietor or a single-member LLC, you can easily pay yourself from the business, and you would record these payments to yourself as an owner’s draw. An owner’s draw is not recorded on your profit and loss report or income statement. When you are a sole proprietor or single-member LLC, the total net income from your business is computed and reported on your tax return.
I know it may seem like separating your business, and your personal funds will be causing you additional work, but I promise in the long run, you will be much happier with the outcome and the extra time and money you will save overall by having your funds separated. This doesn’t need to be hard, you simply set up separate accounts, and once you get in the habit of only utilizing the business accounts for your business funds, you’ll feel more in control of your business and your business finances. If you feel like you need some additional help with keeping your business and personal funds separated, I’m inviting you to schedule a free consultation session where we can go over any questions you have regarding your business finances. You can go to www.FinancialAdventure.com/Contact-Us and schedule a time that works well with your schedule.
Imagine having a system in place where you spend less time buried in paperwork and more time doing what you love. That’s where I help my clients. They are able to have proper processes in place, understand why they are following through with these processes, and they have more peace of mind when it comes to their business. Striking a balance between the demands of running a business and maintaining a fulfilling personal life is an art; it’s about creating an environment where you can thrive and support your lifestyle. By being proactive and setting up efficient processes, you can ensure a smoother, more enjoyable year-end, and you’ll be prepared to file any necessary filings with the IRS. By working with me, you’ll change more than just your bookkeeping processes. Like many of the clients I’ve worked with, you’ll go from not knowing how to get through all the stressful situations or being unprepared to being totally in control of exactly what you are choosing to get done at the time you want to have it accomplished by, all while knowing you are doing enough and you’re able to enjoy your business and your personal life. I help clients just like you with strategy, mentorship, and coaching. When you work with me, you’ll show up much more differently than you do today, and, after all, this is what you ultimately want in your life, right? You can be stress-free in both your professional and personal life. Come join me. When I work with clients throughout the year, they are able to reduce their stress and overwhelm, understand how to master their small business finances, develop solutions to grow their bottom line and create a work-life balance they truly enjoy. I encourage you to take the next step by signing up for a free consultation where I’m going to teach you the first step in my process so that you can eliminate stress, overwhelm, or overworking in your professional or personal life while you continue to get done what matters so that you can live your life with joy, purpose and a more fulfilled life. Feel free to reach out to me with any questions you have; I’d love to help you on this journey. You can schedule your free consultation or sign up for a coaching session today at www.FinancialAdventure.com. As a Certified Public Accountant and Certified Life Coach, I can help you set goals and develop a plan that will allow you to lead a happier and more sustainable life in your business, career, or your personal life. I’m here to guide you through the financial aspects of your business as well as help you focus on the strategies you need to follow to reach the success you want to achieve in your professional or personal life and stay committed so that you can continue to keep pushing forward and relieve the stress, anxiety, or overwhelm you are currently feeling. Having an accountant and certified life coach like me can provide you with valuable insights and ideas to help you simplify your life, which enables you to go back to enjoying your professional and personal life. I work with business owners, accountants, and other financial professionals to create the actionable steps they need to take to ultimately achieve their goals while getting relief from the stress and overwhelm they feel from the pressure of owning a business, deadlines, and the workload they face every day. If you are struggling with this as well and would like some help developing a solution, help strengthen and maintain your emotional health, increase your well-being, create a more positive, happy, and joyful life, set and achieve your goals, and manage your relationships, I’d love for you to join me in my Balance Life Coaching program so that you can live a more purposeful life. Each week, we meet privately one-on-one, and you get to bring whatever is on your mind on any given week. I also have a daily coaching program where you can talk to me whenever it works best for you, 24/7, any day of the week. In either program, you get to work on your highest priority, whatever you want more of in your life, or if there is something that is weighing on you heavily that you need coaching on, and we’ll work through it together. Having a certified life coach like me helping you through all of this allows you to feel so seen and cared for, and the results are amazing. Everyone benefits when they work with a certified life coach. After every session, you feel energized, and you know exactly what to do for the day or week to come, and relief knowing we will meet again to go over anything that comes up after your session. You’ll gain self-awareness while you take each step toward your goals. The investment in either of these programs is an easy yes for you. I’ve set these programs up in the most supportive way. If you are ready to join the Balance Life Coaching program, you can go to www.FinancialAdventure.com and click on the work with me button. You’ll see the link to join as well as additional information about the programs. Sign up now. There are limited spots available for these programs due to the one-on-one aspect, and they do sell out. If the payment link is gone, you can get on my waitlist to join the programs when additional spots are available. I help people get results and live a more joyful life. I coach everybody on everything. I know there is something you want in your life, and I can help you get it. I know this is something you’ve been waiting for. I’ve been asked by many of my listeners to create these exact programs. The faster you get access to the program, the quicker you’ll see the possibilities available to you. I also have a risk-free guarantee. I believe so strongly that everyone benefits from coaching that when you sign up for the Balance Life Coaching program today, if for any reason you are not satisfied with your first session, you can send us an email, and we’ll refund you immediately. Are you ready to enjoy your life now? Why would you want to wait? Make this investment for yourself. Take the journey with me…make it happen for yourself. Ask yourself why you need this program in your life right now. Are you ready to make bigger, bolder, stronger life goals? I’m looking forward to meeting with you soon and digging deeper to see where you currently are in your business or career and start creating actionable steps so that you can reach your vision and goals for the future, not only in your business or career but also in your personal life. I’m ready to work with you, see all of your successes, and watch you thrive in your business or career while creating your best work-life balance. I’ll post links to this and other valuable resources for business owners and accountants where you are listening to this podcast.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
