Startup Tuesday: 3 Easy Ways to Separate Business Finances From Personal
Posted by Megan Webb-Morgan on March 12, 2013 in Business Financing, Business Start Up Advice [ 0 Comments ]
Having your business and personal finances tangled up in each other can make it difficult for you to track profits, manage expenses, or control your credit history.
Failure of your business, personal bankruptcy, or an IRS audit can cause a significant backlash in both your business and personal life if you don’t take the effort to keep them separate. If you’re starting your new business, it’s best to separate them from the beginning to avoid future complications.
Open a Business Checking Account
Keep finances separate by opening a dedicated checking account under your business name, and only use that account for business purposes. As soon as you have established this account, stop using your personal checking or credit card to make purchases.
- Maintaining separate accounts for your business and personal finances keeps you from having to go through your card statement each month to divide up your expenses and payments; separate statements save you time and headaches.
- A business checking account establishes a banking history for your business. This gives all your business’s financial transactions greater authority and professionalism, you’re interacting with vendors, suppliers, or customers.
- Establishing a relationship with your bank through a business checking account can be very useful later on when you are applying for credit cards and loans through your bank.
Apply for a Business Credit Card
As of the end of 2009, 83 percent of small businesses used credit cards; 64 percent used small business cards, and 41 percent used personal cards (“Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses,” May 2010).
Much like a dedicated business checking account, a business credit card makes it easy for you to keep your personal and business purchases separate.
- Signing up for a business credit card helps create a credit history for your business that is separate from your personal credit history and credit score. Both histories are protected from each other’s risks and damages.
- Business credit cards often come with more rewards and perks than personal cards. These can include airport concierge services, employee fraud protection, auto rental insurance coverage, and many more.
Get a DUNS Number
Keeping your personal finances separate from your business finances is important for creating a good business credit history and applying for business loans. A Dun & Bradstreet DUNS (Data Universal Numbering System) number, like your federal tax EIN, can help your business establish a credit history that is specifically business-oriented.
- Your DUNS number only reports your business transactions and credit history to credit agencies; your personal credit is not connected to your DUNS number, so even if your personal finances become damaged, your business credit will be unaffected.
- You can order your DUNS number online or over the phone; there is no charge for obtaining a number.
Protect yourself, your family, and your business by maintaining separate accounts and credit histories for your personal and business use. Even something as simple as a business checking account can fulfill most of your needs; take your efforts a step farther by acquiring a business credit card and a DUNS number, to truly establish your business credit.