Small Business Tip: Separate Business Expenses from Home Expenses

Every year, business minded people start a home based business. They do it for many reasons. Most people want to increase their income. Others want to leave their traditional jobs behind. What many of these new business owners realize is that if they aren’t careful, their new business can be very short-lived if their money aren’t managed carefully.

Small business ownership is hard. There are many things that have to be done money management is one of them. Many home-based business owners find themselves happy to have the additional income but they confuse their business finances with their personal finances. This can be the death of any small business.

Business Cash, Personal Cash

Financing a small business is hard. This is something that many people save money to do or take small loans to make happen. Because the money that finances the business initially comes from the business owner’s personal work, some business owners think it is okay to pay for their personal lifestyle first before tending to the business’s financial needs.

Once a business has been started and money is being made, there will be business expenses. By keeping business money separate from personal money, business owners will easily be able to pay those business expenses. Once all the business expenses have been addressed, then is it appropriate for business owners to take some money from the business account and place it into the personal account. As businesses grow, it may be smart to assign a salary to the business owner but it shouldn’t be done until the business can financially survive the decision.

How to Separate

When it comes to keeping money separated, business owners should open a bank account for their business. This is very important because business owners will be able to direct all the money they make into one account. This will give business owners an easy way to track their earnings, expenses and profit. The business bank account should have no direct ties to a business owner’s personal account. They should not be linked and they should not have an overdraw feature connecting one account with the other for any reason.

Once the business bank account has been set up, business owners should pay any business expenses from their business account. There may be times funds are low and there needs to be an infusion of cash into the account. When this is necessary, business owners should make a deposit into the business account, not pay for items with their personal funds. When it’s time to take money from the business account for personal expenses, there should be a deposit from one into the other.

Starting a small business is filled with a number of small steps. These steps can take a lot of time but if done properly, most business owners are happy they have done it. Taking the time to properly set up a business bank account is one of the best things a small business owner can do for the health of their company.

Jul. 1 14'
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Jul. 7 15'


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