Is it that important to separate business from personal when it comes to your finances?
If you’re in business for yourself, any kind of business, and you’re serious about getting really healthy finances, saving time and money, then this week’s blog post and podcast interview is definitely for you.
Many small business owners use their personal bank accounts when their company is growing. However, at some point it becomes important to maintain a separate business bank account, especially if you’re trying to claim business-related tax deductions.
This week I was interviewed by Waz and Nic from Tradies in business about the subtle (and sometimes not so subtle) art of budgeting.
Here’s what Nic had to say about the interview…
“I might roll my eyes at the thought of talking about cash flow and budgeting again, but holy wow, Anthea Falkiner from Bright Spenders certainly changed my mind. This episode is jam-packed with simple, actionable tips and insights into taking control of your money. If you want to understand the power of your money and the security that comes with having the right budget in place, don’t miss this show!”
**It’s doesn’t matter if your business is a trade business or any other. You’ll still get enormous value from this interview. But if you ARE in a trades business then check out the whole of the Tradies in Business Podcast series. (Links at the end of the article) Here’s the interview…
In this episode we cover off the 3 biggest reasons you should build a fence between your business and personal finances…
What follows is just a snapshot. Definitely listen to the whole interview for the specifics and tips.
#1 Clarity, clarity & a whole lot more clarity
How can you ever know how much it really costs to sustain your lifestyle if you don’t separate out your personal spending?
The blurred lines between business and personal make it really difficult for you to get clear on how much you’re spending personally, and how much on business. Conversely, separating out business from personal means you get a really clear picture and can begin to make adjustments based on what you see.
#2 Simplify Tax Time and Cut Costs
It can be a nightmare to separate out business income and expenses when everything’s pooled into one account. In contrast, a year-end bank statement from the business account makes entering income and expenses a breeze.
A distinct business account will cut down on the time it takes to file your taxes and the fees you pay to tax professionals. It’s also a whole lot less expensive because there’s less bookkeeping to do.
A separate business bank account also makes things a whole lot easier if you are ever audited by the ATO. Things like office supplies and computer software are deductible on a business return but not on a personal return. For this reason, auditors look closely at small businesses with large business expenses. Separate bank accounts make it easier to prove which purchases are for you and which purchases are for the business.
#3 Hobby vs. Business
Having separate finances for business and personal give you a definite appearance of professionalism and shows both potential customers and the Tax office that your work isn’t just a hobby.
Using a personal bank account for receipts and payments can concern customers and annoy suppliers. Customers may question your level of commitment and professionalism if they’re forced to make personal payments to you. Bookkeepers and accountants might get confused about what your invoice is for, which could delay your checks.
Businesses who have recorded losses over recent years are often more closely scrutinized by the tax office. The ATO look for separate business accounts and financial record-keeping to make sure your business is legitimate and not just a vehicle for dodging tax.
In business yourself and looking for ways of improving the way you do business?
Then definitely check out The Tradies in Business Podcast for a wealth of experience and tips.