CENTER FOR RURAL AFFAIRS / From the desk of Kim Preston
Separating your business and personal finances is one of the smartest (and simplest) steps you can take to protect your business, your sanity, and your future.
Whether you’re a brand new business owner or have been operating for years, here’s why financial separation matters.
Dividing your business and personal finances simplifies accounting, protects personal assets, and establishes credibility.
1) Separate accounts make bookkeeping and tax filing easier. When business and personal funds are mixed, it becomes very difficult to track which expenses are legitimate business deductions and which can lead to higher tax payments.
It also lets you see missed deductions and avoid extra scrutiny from tax authorities.
2) Co-mingling your personal and business finances could result in you forfeiting the legal protections provided by your business structure. The corporate veil doctrine protects your personal assets from potential business lawsuits, but this protection is void as soon as you use your business account for personal expenses or vice versa.
3) If your business requires a loan, lenders and banks will require clear financial records to determine your business’s financial health. If your personal and business funds are tangled, it can raise red flags about how your business is managed to banks and investors alike. Separate financials build confidence that your company is legitimate, organized, and ready to grow.
