The distinction between work and play shouldn’t ever be blurred. Starting a business necessitates the separation of personal and business finances. It will greatly impact how your company runs, and the business world sees it. There are several advantages to separating your personal and corporate accounts, including tax advantages and the ability to protect your assets. But if you don’t do it, you can find yourself in a tough spot if something goes wrong. Keep reading to find out how to separate business and personal finance for better finance management.
- Apply for UEN
Obtaining an Unique Entity number is the first step in separating company and personal money. An UEN is a nine or ten-digit number that the ACRA issues to your business. You use it to file your business’s income tax return payroll, determine the legal status of your company, create a business account, apply for a business credit card, and many other things. Imagine it as your social security number for businesses.
Your national identification number won’t be required after you have an UEN, helping to draw a preliminary distinction between your personal and business finances.
- Business account
Business account is the most crucial requirement if you want to start keeping your personal and business finances apart. Choosing to open a business checking or savings account is entirely up to you. But given that a business checking account is the bedrock of any organization’s financial structure, we recommend opening one first.
Suppose you have a specialized company checking account. In that case, you won’t need to operate only on cash or use funds from your personal bank account to pay bills, deposit cash, collect invoice payments, or make equipment purchases. Here are three excellent choices to get things started.
- Keep yourself on the salary list.
Setting up a formal separation between your personal and corporate money by paying yourself a salary from your company. Transfer money once or twice a month from your business account to your checking account as if you were working for someone else. Instead of drawing money whenever needed, you may plan when and how to withdraw funds from your firm by paying yourself a wage.
- Business credit card
If you have a business bank account, you might be all set. However, you still have work to do if you charge business spending to a personal credit card. The same rule applies here: You are not truly distinct if your business costs are not on a separate card. You can raise your company credit score using a credit card for commercial purposes. It is a significant asset for a business owner to develop, especially if you anticipate your company growing—whether that means moving into a bigger site, adding additional locations, increasing your line of credit, or accomplishing any of these things with the help of business financing. The ideal way for you to start establishing your business’s credit score is with a credit card.
- Be aware of when you use business finance for personal use.
You should know the following situations if you work from home, travel to client meetings in your vehicle, or communicate with clients on your phone. You’ll be able to deduct some or all of those costs during tax season if you can track when you use personal products for work-related purposes. Therefore, familiarize yourself with what costs qualify as company expenses and what don’t. When it’s time to file, take notes and deliver them to your accountant.
- Keep separate receipts
Make sure your personal and professional receipt storage locations are separate from one another. The ACRA would want to review your business receipts during an audit, so you’re in danger if you can’t distinguish them from your receipts. Remember that it will be much simpler to separate receipts if you have a business account and credit card (that you only use for business purposes).
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What are the types of business finances?
Your company’s finances cover both its revenue sources and its expenditures. There are two ways to get money: equity fundraising and debt finance. Any loans you take out to finance your company and pay back with interest are called debt financing. Any money received through capital fund-rising is referred to as equity funding. However, you must give your investors a place at the decision-making table even if this money often does not need to be set aside in case the business fails. Equity funding needs less influence over the decision-making process of your business operations, whereas debt funding often carries more risk.
Your company’s finances cover both its revenue sources and its expenditures. There are two ways to get money: equity fundraising and debt finance. Any loans you take out to finance your company and pay back with interest are called debt financing. Any money received through capital fund-rising is referred to as equity funding. However, you must give your investors a place at the decision-making table even if this money often does not need to be set aside in case the business fails. Equity funding needs less influence over the decision-making process of your business operations, whereas debt funding often carries more risk.
Conclusion
Considering these specifics may seem overwhelming when starting a business, but in the long run, you’ll be glad you did. By taking things slowly, you may build up your company, implement sound financial procedures, and safeguard your assets and finances.
Your company’s finances cover both its revenue sources and its expenditures. There are two ways to get money: equity fundraising and debt finance. Any loans you take out to finance your company and pay back with interest are called debt financing. Any money received through capital fund-rising is referred to as equity funding. However, you must give your investors a place at the decision-making table even if this money often does not need to be set aside in case the business fails. Equity funding needs less influence over the decision-making process of your business operations, whereas debt funding often carries more risk.
