If you own one of the estimated 32.5 million businesses in the United States, there are undoubtedly many things worth staying on top of to guarantee success. Separating your business and personal finances is one of the things you must accomplish to enjoy this success and even avoid legal trouble. Furthermore, keeping your personal cash separate from your company’s income can simplify your accounting, protect your assets, and keep tax issues at bay. Below are some ways to separate your personal and business finances.
- Open a business bank account
Having a business bank account is certainly one of the best ways to organize your business finances and keep them separate from personal cash. Therefore, consider opening a business checking or savings account to keep your company’s money. Many experts recommend opening a business checking account first because it is the bedrock of your enterprise’s financial foundation. You can deposit cash, pay bills, purchase equipment, and collect invoice payments with a dedicated business checking account without operating a cash-only operation or leveraging personal funds. Many banks require an EIN to open your business bank account, so it would be best to obtain one before proceeding.
- Register your business
You must also establish your company as a separate legal entity to ensure your personal and business finances are kept separate. For this, consider starting an LLC, C-Corporation, or S- Corporation, since these structures give your company a distinct legal identity and separate you from other stakeholders. In addition, consider how your choice will affect how you can raise capital and what you will pay in taxes.
- Get an employee ID number (EIN)
Your EIN is like a social security number for companies. This nine-digit number is a top priority because you need it when choosing your organizational structure, filing your company’s income tax return, and applying for business credit cards and bank accounts. Having an EIN means you won’t have to use your social security number in your business affairs and documentation. Additionally, this number can help prevent identity theft. Thankfully, applying for an EIN on the IRS’s website is completely free and fast.
- Get a business credit card
Fundera reports that about 67% of US business owners have business credit cards. A business credit card can help you distinguish between personal and company funds successfully, so they are worth having. These cards have higher credit limits than personal credit cards, which comes in handy for business spending. Also, a business credit card ensures that any problems in your company don’t influence your credit report. This way, you can avoid problems with funding for significant purchases like a house or car in your personal life. Business credit cards also help you build your business credit and enjoy merchandise discounts.
- Separate Your Receipts
You can also store your personal and business receipts in separate folders to keep your company and private funds distinct. The IRS would demand your business receipts for auditing purposes, and you can face many challenges if you cannot distinguish these receipts from your personal ones. Therefore, keep your personal and business receipts separate to remain fully prepared if the IRS comes knocking.