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Why You Should Separate Business And Personal Finances

Business Management

Why You Should Separate Business And Personal Finances


Money is a vital aspect of business in every way.  The way you handle your money, the way you separate your money, and the way you invest your money are all vital to the long-lasting success of your business.  

You enter a dangerous situation when you integrate your business and personal finances.  Take a moment to read through a few reasons why the mixture isn’t copacetic, and consider how you might augment your current approach to your business and personal finances.  

The legal implications to consider 

You worked hard to file the proper paperwork to make your business into a legal entity.  As the owner of an LLC, partnership, S-corp, or C-corp, the financial legalities that apply are extensive.  

It’s much easier to keep your finances and actions within the boundaries of the law when you keep your business separate from your personal comings and goings.  You don’t have as much legal protection when you mix your business and personal finances. 

For instance, if you have a client file a lawsuit against your business, you may be on the hook for a lot of money in reparations.  If you mix your business and personal finances, your personal finances will also be affected by the legal infliction.  

Exposure of your personal assets

Your personal finances shouldn’t even be considered part of the puzzle when your business needs a big-ticket item for operations.  Say you own a gas station.  

Proper metering and measuring of your gas stores are essential to the efficiency of your business.  If the tanks are obstructed or damaged, you could be faced with some pretty wonky measurements.  

It would be crucial that you fixed the problem as soon as possible, and you don’t want your personal bank account taking the hit for a cost that large.  Keep your business issues with the business, so you always have a stable home life to enjoy.  

Bookkeeping and tax headaches

If you hire a good bookkeeper or accountant, the first thing they will tell you is that you have got to keep your personal finances separate from that of the business.  Your tax returns will be messy and hard to handle if you muck up your financial records.  

If you are audited, it may be hard to track down the paperwork necessary to appease the IRS, and that is reason enough to keep your finances separate.  

Building your business credit 

You need adequate working capital to keep your business moving forward.  Keeping your finances separated will help you build your business credit, so you have the ability to obtain money when you need it.  

On the other hand, tying your personal credit to the actions of your business could be dangerous.  If your business fails or goes bankrupt, you’ll be on the hook for the financial turmoil that follows.