When starting a business, there seems to only be one source of money- yours! Being capable of determining which is earmarked for only business use, and what is taxable for business needs is critical. Your progress as a business owner will be determined by how well you assess and separate out your finances. Knowing what to touch, what is of limits, and when, is critical for both your home and business budgeting!
Keep Separate Accounts
This tip seems to be an obvious one, but you’d be shocked at how many of those beginning in business forget to separate out their money from the start. You might pay yourself, but you must have a firm separation of those things. You must start by registering your business, obtaining an employee identification number, and beginning a business account. Why? It limits your liability, and allows you to make tax deductions with the IRS.
Structure Your Business Properly
What business structure you choose will determine your personal liability. It’s your job to find expert counsel to help you determine what structure is best for your individual company. What sort of structure depends upon your finances, what sort of business it is, and whether or not you have a partnership with another person. It’s important to limit your personal liability so that your personal assets are not in danger if the business has legal issues. Of course, nobody plans on having such things happen! But, it’s important and intelligent to prepare ahead, even for worst-case scenarios.
Look Professional, Be Professional
Moreover, your small business looks more professional and seems more legitimate when it has separate accounting for personal and business income and deductions. Having a business credit card for expenses which will need to be written off, for example, is always helpful at tax time for accounting. It’s also nice to be able to have when feeding investors a nice lunch. Keeping business transactions above-board by doing simple arrangements, such as renting your home office to the business, keeps your paperwork at the end of the year easier.
Especially during times like these, when home offices and equipment are being used for business and contract work, it’s important to be able to separate out those expenses from those of the home. It’s increasingly difficult to perform “arm’s length” transactions when your business, which once was in its own space, is now mingled with home and family space. By taking simple steps to make sure the money is separate, you can help keep your family and home safeguarded. Separating out your office space from family noise might not be so simple!
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