How to Separate Your Business and Personal Finances

Milk and cookies, peanut butter and jelly, some things just go together, while others….not so much (Okay, okay, I will save the pineapple does NOT belong on pizza rant for another time…).

Seriously, though… one of the biggest favors you can do yourself, and your business, is keeping your personal and business finances separate. Think serving beef wellington with a side of mac and cheese- both are delightful in their own right and have their place- just not on the same plate.

Why is it important to keep my personal and business financials separate?

While saving time and money is reason enough to keep your personal and business accounts separate, the rationale goes far beyond that- it is a legal requirement for any LLC. Given the needs of a business account, you might opt to use a different institution for your business than you use for your personal finances. 

There are several key factors to keep in mind when choosing a financial institution. To start, be sure to select a bank that is convenient. Your bank needs to be easily accessible, especially when running an online business. 

Secondly, be sure to do research on any fees associated with having an account at a particular institution. Credit unions are a great option and usually offer accounts with limited fees while maintaining all of the benefits of a standard banking institution. 

If you are seeking exclusively online banking, another option is opening a Wise (formerly TransferWise) account or a Novo account. Depending on the locale of your business, one of these might serve you well.

With so many options, which accounting system is right for my business?

Now that we have discussed the importance of keeping your personal and business accounts separate, let's delve a little deeper into the different types of accounting systems to help you choose the one that will best meet your business’ needs. 

Regardless of how far you are in your business journey, you have most likely heard of  QuickBooks , the leader in small business accounting.  It’s easy to understand why QuickBooks is so popular; it offers more integration than its competitors, and its high functionality will grow right along with your booming business. However, there is a significant learning curve to using this widely popular system. As a Quickbooks proadvisor, reach out if you have questions about one of their plans meeting your needs. 

QuickBooks’ greatest competitor, Xero, has quickly been gaining users. Like QuickBooks, Xero also provides integrations as well as varied plans to meet the unique needs of your business. Basically, these two options can be likened to Mac versus PC. Think you might be interested in Xero? As a certified Xero Advisor, we’d be happy to help you determine if one of their plans might be right for you. 

If budget friendly is at the top of your priority list, Wave might be just what you are looking for. Unlike its counterparts, Wave is completely free for users, making it a popular alternative. Wave offers automations and reporting similar to QuickBooks and Xero, but  It also provides accounting and invoicing in one place. Unfortunately, it does not follow the industry standard of using double entry accounting. Basically, Wave is completely customizable so you can do whatever you want, however you want.  The drawback is that with this freedom, it also allows greater room for error.

Lastly, Google Sheets and Excel are another highly accessible (and free!) option. They allow you to organize your finances in a way that completely works for you at very low cost. While this does allow some front end savings, this option does not have advanced reporting capabilities.  It also does not offer double entry accounting, so it cannot save you from yourself if you make a mistake.  If you choose to go with Wave, Google, or Excel, be sure to double check your work and be prepared for a higher margin of error.

When should I start?

Now that you have gained some insight as to the necessity for separating your personal and business finances and (hopefully!) done some research on which system is best for your business, remember to set yourself up for success by establishing a monthly routine. Your monthly routine should include an update of all income and expense records, as well as a profit and loss, if you have that capability.

There are plenty of unavoidable stresses with owning your own business, taxes (Yep! We said it!) does not have to be one of them. Save yourself time and undue stress by keeping your account current. You’ll thank yourself at the end of the year!  Keeping your accounts up to date, also helps you predict your finances, an invaluable tool when owning your own business. It’s also very important to keep it accurate for reporting purposes. 

What’s next?

Be sure to stay tuned for our next discussion where I’ll be answering the million dollar question, “What should I pay myself?” 

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