It's so easy for us to just mix our personal finance with our business finance. And if you're not being intentional about it, you're going to struggle with this later on.
Especially when you’re in the early days of your entrepreneurial journey, you might find it very difficult to separate the two. And if you're 100% the owner of that business, it's almost always easy to say that it's yours anyway.
But you have to get your mind right around treating your business very seriously. Separate yourself from the business in whatever way you can, however you can, and as often as you can.
Expenses
There’s nothing wrong with paying for your personal expenses out of your business funds (and vice versa). You just have to account for it. You also need to understand that tax laws have negated the tax deductibility of a lot of entertainment expenses. So your company can still pay for tickets to a game or an event, for instance. But it just won't be deductible on the tax side.
Taxes
No matter how you're structured, your tax liability is on a personal level. Only the C Corp is on the business level for federal purposes.
Banking, Credit Cards, and Loans
At the very basic level, get the banking and the credit card situation separate. If you're a sole proprietor and you don't have an LLC, set up a personal account that you can intentionally designate for business purposes. Even though it's personal, designating it as your business bank account is an invaluable tool.
Meanwhile, there are business products where you can use the name of your business. This is invaluable, especially when you’re applying for a loan because this adds a layer of legitimacy. But that being said, remember that almost always, there’s personal liability attached to your business.
Budget
If you're a business owner relying on the business to pay you, your personal budget could be dramatically impacted based on the budget of the business as well.
Profit First and Income
The Profit First is a perfect cash management tool based on the equation: revenue – profit = expenses. And by applying this, it gives you a better understanding of your numbers not just from a revenue standpoint, but also in terms of your cost, taxes, and budget.
If you want to learn more about separating your business finance from your personal finance, check out 027: Personal & Business Finance: Know The Difference
