Tips To Separate Business And Personal Finance For Startups
Building of a formidable financial infrastructure for the start-ups is an extremely challenging process. The business saying Time is money acts as a motto for startups to begin their business journey. In their journey they always dream about a bigger financial picture. The management of your start-up finances is not a tough task as most people think, because you can actually operate on a low budget, cost control along with the tracking of technology on a better financial plan. On launching up a new business, one need to focus not on covering the expenses but on making the profit along with a space in the business world. Once you are into the realistic world of startupreneurs you can maximize the chance of success. As a startupreneur you can chose, either to invest your own money or a loan for the startup. During this point of time the startupreneurs are in dilemmas regarding the opportunity cost that they may incur due to thousands of investment opportunities around them. The best course is to follow your financial goals rather than focusing on minimum opportunity cost. Always keep in mind that opportunity cost is the matter of time. It should never be a prime consideration, sometimes overthinking may take you to higher risks.
Moving to the financial aspect, the uncoupling of your personal finance and your business finance is pivotal for protecting your own assets and debts. Accounting entity concept can be considered in this regard to establish the ownership of assets and obligations, as well as to determine the profitability of a specific set of economic activities. It ensures that the owner is separated from the business making the owner to maintain separate books of accounts for personal use.
Some tips to separate your business and personal finance are given below:
Budgeting is a plot for your money.It acts as a tool kit for the startupreneurs while planning.Budgeting never limits but unlimits you to achieve your dreams. Every business runs on the fulcrum of budgets. Through budgeting, entrepreneurs are added with their credibility on spending.
The best part of unmixing your finance is through business credit cards. Business credit will be mandatory to secure business loans. It allows you to track your business expenses, control spending and credit. Personal credit of the owner will be assessed and monitored to determine whether or not to extend credit. Those with a strong credit score will ultimately have more borrowing power, but a bad credit isn’t a deal breaker.
The ability to take advantage of tax deductions, including writing off business expenses, is a huge reason many business owners choose to split their personal and business finances. If you could maintain separate accounts you could enjoy the benefits of tax relaxation.
Save Time and Money
Hiring an accountant will cost huge expenses, but having complete separation of finances equates into less billable hours, helping you to save a large amount of cash in the process.A well-structured business accounting software is another option, as it provides guidance in maintaining the financial records. Appointing part time accountants is also a better solution.
Maintain Separate Accounts
Building an individual business account will help you to measure the difference between personal and business expenses. It assesses the legitimacy of your business. To create the reports, first generate business income /expense accounts in quick books and then add personal income/expenses under the account name other income & other expenses.
Pay Yourself A Salary
Dishing out a salary can help business owners to isolate the line between business and personal profits, instead of haphazardly pulling money from their business. Since it is the right of the owners to obtain salary from the business for the smooth functioning.
Plan to Structure Your Business
Establish a legal structure for your business. The choice depends solely on your personal situation. Then, decide which structure is best for your business needs. The simplest of any of the legal business structures is the sole proprietorship.
Open a small business bank account
Maintain two different bank accounts for business and personal needs. It helps in personal checking of accounts. It smoothens the reconciliation with your business software. It makes a smart look for your business. This enables an exemplary way of bookkeeping so that at the time of tax filings the accountant can feel less stressed to the work.
Benefits on Separating Personal and Business Finance
- Accuracy and transparency — Your personal accounts will reflect personal expenses and your business accounts will reflect business expenses. A solid image of financial structure is formed.
- Better cash flow management — When things aren’t in mesh, you’ll have a clear picture of the factors involved in your business and personal cash flows.
- Easier tax filings — Proper management and tracking of business and personal income makes it simpler to file taxes and claim deductions.
- Choosing cheapest funds for capital investments.
- Enhance the negotiation power with the banks to receive further facilities.
- Quarterly reconciliation of personal account with business account to obtain more control over the cashflow
Why choose CDA Audit:
A few things do not merge well like your personal finances and your business’s. Keeping these separate not only helps you to reduce problems, but streamline things and makes it much easier to allocate your finances. To keep your personal finance from the hustle of business finance needs some extra steps. But most of those steps are a one-time act as you set them up, and then go about your business. It’s worth to put forward some time and effort to maintain that separation.
CDA is a pioneer in providing accounting services in Dubai and all over the UAE. CDA offers highly skilled and professional Part-Time Accountants who are the real assets for our company and in accordance with universal standards. Our professionally qualified and experienced Part-Time Accountants will reach at your company’s door-step and solve all your accounting and bookkeeping works at your premises and will prepare necessary reports and information as per your needs. We are focused on the deadline and accuracy of the monthly financials. This motivates the business organisation to plan and to take decisions with regard to the monthly productivity. Feel good to contact us as our expert will give you one-hour free consultation on your enquiries on business needs.