Separating your personal and business expense may not be an easy task for first-time business owners who are unfamiliar with the process. No matter the type of business you’re running, it’s a necessity for you to separate personal from business finances to ensure they separate. This will help you reduce problems that may arise and will greatly simplify things and make it easier for you to manage your finances.
Most small business owners fall into the temptation of using their personal finances to help boost their business needs, as well as using business earnings to sponsor their personal activities. In both cases, it may negatively affect the growth of your business in the long run, hence, we should separate business expenses from personal.
As a small or new business, it’s always difficult for owners to manage their finances, hence will need the services of an accountant or an outside expert. The latter is better for small businesses that are still to grow.
It is necessary for business owners to separate business expenses from personal expenses. This will help ensure they treat their business like a separate entity, while safeguarding their personal finances. It will also help them to easily manage their company accounts at the end of the year in order to avoid being penalized by the tax authorities.
Once you separate business expenses from personal, it makes it easier for you to keep track of business expenses for tax purposes. Keeping track of your business’ expense is very essential in filing your taxes properly.
When filing your taxes, the tax administration requires business-only information. That not withstanding, having separate business expenses will help you save a lot of time and stress. It will help you know what you can deduct and what you can’t when preparing your annual accounts for tax purposes.
Having separate business expenses from personal expense will make it easier for you to grow and evaluate the health of your business. It will help you know the difference between personal and business income when preparing your profit and loss statement (income statement).
Before Excel or other bookkeeping applications came into existence, many accountants or business managers used handwritten spreadsheets to track business income and expenses. Now we have spreadsheet applications like Excel, which is used to design spreadsheets that automatically does the math for us.
We also have various database applications that do the same thing, though they don’t allow you to see more information at once like spreadsheets. Make sure you recover unpaid invoices before the end of the year.
It’s very necessary for every small business owner to track their income and expenses. This to me is the first step in money management. It will also help you separate business expenses from personal.
Using a spreadsheet like Excel to manage your business’ expense and income will enable you to see quickly and clearly how your expense categories change from time-to-time. It also makes it easy for you to compare and come up with income and expense summaries over time.
Once you outsource your accounting to OpenHub Digital, it helps you concentrate on more important parts of your business like sales, product development, marketing and others.
Want to outsource your small business accounting and tax management? Get in touch with us now!
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This content has been prepared for information purposes only. It is not intended to provide, and should not be relied on for, tax, accounting or legal advice. You need to consult your own tax, accounting or legal advisors before engaging in any transaction.