Keeping Your Business and Personal Finances Separate

Whether you’re starting your own small business or you already have one, keeping your business finances separate from your personal finances is something any entrepreneur/business owner may wish to consider.

With the UK economy expected to start recovering throughout the course of 2010, making sure you keep these two aspects of your finances separate is very important.

If you already have your own business, the chances are, you will have put a great deal of time, work and money into your venture and your personal and business finances may have ‘crossed paths’ somewhere along the way. If you are in this situation, there are several things you could do that may help to improve your financial management skills.

1. Sort through all your paperwork

Firstly, get all your paperwork (both business and personal) together in one place. Now work your way through the paperwork, separating it into two different piles – this is simply so you can ‘physically’ separate both aspects of your finances.

Once you have done this, you should go through each pile and shred or file away any of the documents you no longer need. This should help you condense each pile, making them both easier to manage. It is important to bear in mind though that you may be required to keep old receipts, invoices and statements for tax purposes. To find out what you should keep, and how long you should keep it for, you may want to contact an accountant.

Alternatively, you can visit this page to find out the Government requirements regarding your business records.

2. Keep business in one drawer, personal in another

Now you have sorted and condensed the paperwork side of your finances, you need to make sure they are kept separate. A simple way to do this is to keep your business finances in one place, and your personal finances in another.

It can be easy to just throw paperwork to one side and let it pile up, but by taking your time and actively filing the paperwork away into the ‘right pile’, you could save yourself a lot of hassle in the long run.

3. Keep all business funds completely separate from personal finances

Now your paperwork is organised, you need to focus on the money itself. A simple way to keep your own finances separate from those of your business is to have two completely separate bank accounts.

Providing you know how much money you are required to spend on your personal expenses (mortgage/rent payments, food, bills, travel costs, etc.) each month, you should be able to keep this amount separate from your business finances.

However, if you aren’t sure how much money your personal expenses require each month or how much money your business requires each month, you will need to look at your paperwork again and work this out.

Once you know what/how much needs to go where, it’s just a case of moving your money (if you haven’t already done so) into separate accounts.

This is very important, because if your money is kept in the same account, you may unwittingly ‘dip’ into your personal funds to support your business. This can be ok – providing you can afford to do it – but at a time like now, when many people are struggling with debt (guides on debt), it could be a dangerous move and may lead to financial difficulties.