When you own a business, it can benefit you to separate your business finances from your personal finances both to reduce costs and to stay organized. Here are just several tips for separating your finances.
Obtain an EIN
You should start by applying for an Employer Identification Number (EIN). This is a nine digit number that you can start using when filing taxes instead of your social security number. Even if you have no plans to hire employees, an EIN can help when setting up business bank accounts and changing your business structure. You can apply for an EIN online at the IRS website.
Set up a separate business account
Opening a business checking account can help you to keep funds set aside purely for business purposes. It makes filing taxes easier as you can more easily distinguish business expenses from personal expenses by keeping them to separate accounts. Some business checking accounts also have benefits that personal checking accounts don’t have such as no fees when depositing large amounts of cash and the ability to apply for business loans. There are also business savings accounts that you can open that often have higher interest rates than personal savings accounts.
Switch to an LLC or corporation
It could be also worth changing the legal structure of your business. If you’re currently a sole trader, any personal belongings could be seized in the event that you’re unable to pay off a business debt, just as any of your business possessions may be liable if you have personal debts. When setting your business up as a LLC or corporation, it becomes its own separate legal entity. Any possessions or funds that then belong to this entity are not liable if you have personal debts. You can hire legal professionals to help you with this process. Both LLCs and corporations have their own separate benefits and drawbacks, so spend some time doing your homework.
Pay yourself a salary
Once you’ve got a business account set up and have changed your legal structure, it’s worth paying yourself a salary as if you were an employee. This can provide you with financial stability, allowing you to know exactly how much you’re making a month, as well as preventing you from pulling too much out of your business funds for your own personal use. Many business owners find that giving themselves a salary encourages them to start saving up funds.
Get a business credit card
If you need a credit card for business purposes, it’s worth applying for a business credit card. If you’re using a personal credit card, you’ll find it harder to determine which expenses are business-related and it will also affect your personal credit score. When you own a business credit card, you develop a separate business credit score, which could be useful if your personal credit score isn’t great. There are many different business credit cards out there all with different perks ranging from low interest rates to extra rewards.