Cashflow is the life blood of any business, but often times entrepreneurs find it difficult separating personal finance from business finance while running their businesses. Personal finance refers to money that belongs to the business owner and is used in meeting personal needs while business finance refers to money that belongs to the business and is used for the day to day financing of the business.
Micro and Small business owners particularly face this challenge as they tend to dip into personal or business coffers to meet pressing needs without keeping records. Here are some tips to help you separate business finance from personal finance:
- Maintain separate Bank Accounts– Personal and business accounts should be kept separate as this will make lodgment and disbursement easier to account for. Separate debit cards should also be held for both accounts.
- Keep proper Records– Business expenses are those expenses incurred by and for the business. Expenses like this should be recorded accordingly. If personal money is quickly used to meet pressing business needs, such expenses should be recorded. The same is true for when business money is used to meet personal needs.
- Pay Yourself a Salary – As a business owner, you should be on your company’s payroll. Paying yourself a salary curbs dipping into the business purse at will to settle personal expenses.
- Institute Accounting Structure – Regardless of the size of your business, it is important to institute accounting structure within your business that clearly shows how expenses are documented and financial records are kept. Your structure should also include a “Checks and Balances” system so that no one has unlimited access to business finance, including you the business owner.
- Hire the services of a qualified accountant– While your record keeping and accounting structure may be good, you will need the services of a qualified accountant to help ensure your records are up to date. If you can afford one, you may hire a full time accountant, otherwise you may hire an accountant on a quarterly basis.
With the implementation of the above tips, you are well on your way to separating business finance from personal finance.