Let’s begin with a simple question: Do the owners and head honchos of big corporations and multinational companies use their personal money to fund their businesses? No, right? A business, no matter how small, is still a business. It’s your official workplace and profession. There must be a good reason the big guns don’t mix their personal and business finances.  

4 Reasons to Keep Personal and Business Finances Separate  

Why keep your personal and professional money matters separate from the beginning?

Efficient Monitoring of Business Cash Flow

Your company’s cash flow is an indicator of your business health. Regularly monitoring the earnings and expenses gives you a clear idea of how your business is doing and what needs to be done to take it to the next level. If you mix it with your personal account, you won’t be able to monitor the cash flow of your business and whether the company is paying for you or you are paying for the business.  

The first step to separating your professional finances from your personal ones is opening a separate business checking account at the bank for all your small business needs. 

A business checking account comes with a host of offerings that make it easier to track and manage business transactions:

• They keep all your business-related transactions in one place, making them easier to assess and act on.
• They offer you services such as mobile or online banking, which enable you to deposit or withdraw funds, request bank statements, pay bills, wire transfers and other tasks on the go, from anywhere and at any time.
• Some banks even offer software for invoicing, expense tracking and categorizing under customized headings for bookkeeping convenience.
• You can also get an exclusive credit card for business expenses to help you keep better records at the time of taxation.

But remember, credit card or bank statements aren’t valid proof for claiming tax deductions. So, save and file all those bills and receipts. 

More Accessible Account Keeping for Tax Deductions 

Mixing your personal and professional finances can be a headache during tax season. Small businesses can deduct certain expenses to earn revenue from their taxable income. When your personal and business finances are in one account, it becomes difficult to sift and sort through all the transactions and pick out the ones related solely to your business. To claim tax deductions, imagine sorting out an entire year’s travel, meals, electricity, telephone, and internet bills. Ultimately, you might lose some attractive tax deductions because of the confusion.   

Hence, it is crucial to separate business and personal expenses as and when they occur. If you paid for gas, note down the miles travelled and the purpose of the visit, and tag it under business. And remember, the CRA does not accept bank and credit card statements as proof of expense. This might take 15 minutes of your day, but it will save significant taxes. A professional accountant can guide you on which expenses to record and which receipts to store.  

Separates Personal Liability and Business Liability 

On the personal front, this is the most important reason for separating your personal and business finances. There are times in the life of a small business owner (especially when your business is in its nascent stages) when you use your personal finances to help your business needs. To secure their fledgling business, owners sometimes sign up their personal assets, including property, insurance and even retirement savings, for office leases or lines of credit. 

But running your own business comes with its risks, and in the event of a downturn or failure, you could be in danger of losing your personal assets. Thus, it is better to be safe than sorry by keeping personal and business liabilities separate from the start.  

And even if you use your personal savings to fund business requirements, record them separately as shareholder loans in your personal and business records. A professional accountant can help you make the most of such funding.       

Create a Professional Image

A letterhead bearing the official name of your small business has a different feel to it, right? Having a separate business account lets you use this official name on all your invoices and other financial papers, making it seem more professional. That little detail of showing that your business deals as a separate entity independent of your personal identity goes a long way towards building a respectable image in professional circles. Even having a credit card with your business name on it makes a positive impression during dinner meetings with potential partners or clients. Not only do other companies, clients and investors prefer dealing with such businesses, but it also helps when your small business grows into a brand of its own.

Contact McCay Duff LLP in Ottawa for Your Accounting Needs

A professional accountant can help you set up your business finances by creating a bookkeeping system, separate bank accounts, financial statements, and tax filing. To learn more about how McCay Duff LLP can provide you with the best bookkeeping and accounting expertise, contact us online, or by telephone at 613-236-2367.