Why Separating Business from Personal Finances Matters
When starting a business, it’s easy enough to keep using the same checking account. However, the mixing of personal and business expenses can create unexpected complications for new business owners who fail to realize it early enough. Keeping personal finances separate from business ones offers several benefits. In this article, we cover a few of them for you.
Get Clarity on Your Financial Picture
When personal expenses and business ones are muddled together, obtaining clarity is extremely difficult. Unless you have intentionally marketed the business transactions separately, then spotting them at all is tough. But mixing both personal and business expenses even when marketed separately doesn’t remove either potential confusion or future complications.
If you’re currently mixing your finances into one, it might be useful to take advice on how to keep business and personal finances separate. The linked article may change your mind and provides tips on how to separate the finances too.
The Other Half in a Couple Will Be Very Confused
If you’re part of a romantic couple and like to treat your finances as one, then it becomes even more complicated. Even if you’re not trying to use a joint account where all money goes into one account, it’s sometimes beneficial to understand what’s going on in each of your financial lives.
For instance, potential long-term partners probably won’t wish to hear that their partner has some larger credit card debts. If they wish to marry, the debt will become their problem too. Keeping business and personal finances together creates unnecessary confusion for everyone.
Visualize the Growth in the Business
When putting considerable effort and time into a business, you want to see how it’s doing. With merged finances, it becomes much harder to create the necessary spreadsheets to accurately track the financial progress of the business.
It’s all too easy to include personal income or expenses with business ones on a spreadsheet. Using the wrong figures will create a murky picture. This situation is likely to repeat again and again until the finances are eventually separated.
Someone Else Managing the Finances is a Problem Too
If you’re wanting to have someone in the business or an outside accountant manage your business finances, it may present a problem.
There could be purchases that you won’t want other people to see. The more private a person that you are, the more this may be true. However, to complete financial reports on your behalf, they’ll need access to everything.
This could become awkward if you don’t wish someone to know your favorite shopping sites, that you’re currently making child support payments after a divorce, or what you’ve spent on vacations over the last few years.
Removes a Headache from Your Life
Merged finances create a headache when needing to run the numbers and see how you’re doing. Whether that’s to assess your personal situation or to get the lowdown on the business financials too.
In this situation, you’ll possibly keep avoiding dealing with the financials. Doing so means staying in the dark which can have other negative consequences.
Splitting up business from personal finances is necessary to run a clean ship. While you can get away with a merged financial picture initially, the longer the business is operational, the more issues it will create.
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