Managing your money is difficult in itself – when you become a business owner, these financial challenges are two-fold. Not only do you have to manage homeownership, paying down debt, and boosting your personal savings account, but you also have to balance your business finances. This includes everything from business loans, day-to-day operations, taxes, and more. So how do you balance both at the same time? The key is to keep them separate and stay on top of each. Below is a guide to managing business and personal finances, along with how to separate the two in order to be a financial success.
Open a business bank account
In order to effectively distinguish and track your business finances, it’s essential to open a business bank account. This is an account completely separate from your personal accounts that allows you to track what’s going in and out of your business finances. This account also gives customers the ability to make payments to your business instead of directly to you. It’s important to know that you should apply for an Employer Identification Number (EIN) before opening this account. This is a unique identification code similar to a social security number that prevents you from using your personal social security number for business spending.
Establish a business credit score
First-time business owners may be unaware of the fact that your business credit score exists, or that it’s entirely different from your personal credit score. A personal credit score determines your eligibility for a mortgage or a car loan. You can build your personal credit score with a consistent history of on-time payments to your existing debts. Your business credit score is similar in that it impacts your ability to secure business loans, credit cards, and insurance, and can also be built up with on-time payments. Measured differently than a personal credit score, this business score is connected to your EIN, and is essential to growing your business.
Get a business credit card
One of the best ways to build business credit is by acquiring a business credit card. This will prevent you from funding business expenses with your personal finances. As your business grows, your expenses will as well. A business credit card will allow you to keep up with the demands of your business, while improving your business credit at the same time. However, remember that while this is separate from your personal accounts, your personal credit must meet certain standards to qualify as well. Meaning, if your business cannot make payments, you will be responsible for them as the business owner, making it essential to avoid biting off more than you can chew.
Delegating yourself a salary as a first-time business owner might leave you wondering where to begin. As the owner, you’re painfully aware of all the costs that go into running a business, which can make it difficult to put your profits toward anything besides day-to-day operations. There are two different ways to pay yourself: you can give yourself an annual salary like you would for your employees, or you can pay yourself on an as-needed basis depending on how well the business is performing. Take a deep dive into your business to make the wisest choice for both your personal finances and business finances.
Keep diligent records
Make sure that you’re keeping detailed records of your business and personal finances. This will come in handy around tax season, and prevent you from getting into trouble with the IRS. Store your business and personal receipts separately in a safe space where they can be easily accessed when the time comes. Hiring a professional accountant can help you navigate the separation of your business and personal finances. They can guide you toward smarter financial decisions, and most importantly, prevent you from making a big investing mistake.
If this is your first time owning a business, don’t worry. With these tips, you can effectively split and oversee your business and personal finances at the same time. Seek professional guidance, keep detailed records, and commit to growing your first business financially.
Aisha Taylor is a single mom of twins, personal financial coach, work from home entrepreneur, and #1 Amazon Best Selling Author of the book “5+5 FNPhenomenal Ways to Save $100 This Week Without Killing Your Lifestyle.” Aisha has been featured in ESSENCE, Jet Magazine, and Black Enterprise. She is also the Founder of FNPhenomenal (Frugal –n- Phenomenal), a movement designed to help single moms create a vision for their lives, craft a financial strategy to support that vision, and show them that phenomenal living is possible. It’s time for you to be Financially Phenomenal!