When you start your own business it’s easy to get your business and personal finances mixed together.
Growing a new business takes a lot of work and it’s easy to forget about where bills are being paid from or you might think that using your personal credit card won’t be a problem.
Having your business and personal transactions mixed together can be a real headache especially when calculating your BAS or EOFY return.
Whether you have an established business or just starting out with your brand new venture, it is essential for you to keep your business and personal finances separate before it gets too complicated or you get caught out by the ATO.
The trick is to carefully track all your business expenses separately from your personal. Although, they both may seem to you almost the same, specially if you are a sole trader. Keeping your business and personal finances separate can save you a lot of hassle and time when it comes to managing your money.
One of the simplest things you can do to help keep your business and personal finances separate is to have a dedicated bank account for your business. Using your personal account rather than a business account for your business expenses can create confusion at tax time, and will leave you wasting time at the end of the financial year trying to separate everything apart.
Four Reasons to Keep Your Business & Personal Transactions Separate
Maximise on your Tax Deductions
When your business expenses are clearly laid out, it becomes easier for you to do your BAS and end of year taxes. If you have your personal and business transactions all mixed up together you could spend hours going through your bank statements trying to classify each transaction. It is not only frustrating but also a complete waste of your valuable time. There is also a risk that you may miss items in your bank statements and lose out on your deductions.
Minimise Risk of Inappropriate Transactions
With the ATO using data matching on unexplained wealth of small business owners it’s important that non business transactions are not being inadvertently included in your activity statements or end of financial year figures. If you have your business and personal finances mixed up you may accidentally include something that you shouldn’t.
Makes You Appear More Professional and Your Business More Official
Even though you’re starting out with your business on your own, having a business account for payments and deposits, will help your business appear more professional to your clients and partners. It will also give you an opportunity to put your business out there and be taken seriously.
Improves Your Credit Card Rating and Enables You To Apply For Finance
When your business grows, you may need funds from investors or a loan from the bank. When you have a business account, your credit rating is visible and you can apply for finance if your credit rating is good. Additionally having a bank account will also help you to easily demonstrate to the bank your full financial records.
How to Keep Everything Organised
All of this is not to say that there aren’t legitimate scenarios where you would be transferring funds between your business and personal accounts or paying for business expenses with your personal credit card. Alexilum can show you how to juggle your business and personal funds while keeping everything above board and easy to manage.
Get in touch with us today to enquire about how we can help you keep your bookkeeping and payroll accurate and easy to manage.