The size of the business is an factor irrespective of which is the importance of bookkeeping. If your business and personal expenses are running in the same account then you either already know the difficulty that it brings later on while auditing or filing tax returns or you are just a novice in for a great shock.
In any case, here is why shouldn’t mingle your personal and professional expenses:
- Bad financial report
If your business and personal are combined in a single account then things are likely to get difficult. Because expenses made on the personal end may get mixed with business ones. It all gets too messy to handle. In this utter chaos, a third party or government officials might take advantage of your business and you may not even be able to pinpoint the problem area.
- Problem while auditing
Businesses are audited each year to know the status of the company. The situation where you are currently stuck calls for an audit and that too with a lot of glitches. If an auditing agency looks up into your account then it might tick off your income as expenses because all your business and personal expenses were mixed up. A business should be managed in a very organized manner especially the finances.
- Complicated to file tax returns
Tax is paid on the income and expenses incurred. One always wants to pay as much less tax as possible. But with all the profits, losses income and expenses transactions mixed up to find the true worth of the business becomes troublesome and time consuming too. Each transaction needs to be looked over to check which section it belongs to, personal or business.
How to keep your business and personal expenses separate, now that it has been established that it is not wise to mix business and personal expenses.
- Have separate accounts
Having separate accounts for business and personal expenses solves a lot of problems in one go. Different accounts for business and personal expenses means that their reconciliations can be done separately and easily. Filing tax returns won’t be a task now.
- Keep business and personal receipts separate
There are definitely going to be transactions in the both the personal and professional sphere but by keep keeping the expenditures receipts separate one can easily account the finances when the time comes. Also auditing your business will be less tiresome as the auditors will automatically not take into account the personal expenses. It saves time.
- Use business cards
The use of business credit cards turns everything into a very convenient mode. It eliminates the tension of carrying so much cash. It brings with it a range of benefits like cash withdrawal anytime and anywhere in the world. It makes record keeping easy. The expenses are also tracked easily and summarized efficiently in the regular card statements. The added protection while purchasing and the low interest rates are irreplaceable perks that only a credit card can provide.