by Sarah | Mar 19, 2024 | Uncategorized
Why You Shouldn’t Mix Business and Personal Finances
As a small business owner, you might be tempted to use your personal bank account for business expenses or to make personal purchases with your business credit card. However, mixing your business and personal finances can cause significant problems that could cost you time, money, and even your limited liability status. In this blog post, we’ll explore a few of the reasons why it’s crucial to keep your business and personal finances separate.
Lost Expense Deductions
One of the biggest advantages of having a small business is the ability to deduct business-related expenses from your taxable income. However, if you’re using your personal bank account for business expenses, it can be challenging to prove which expenses were exclusively for business purposes. As a result, you could miss out on valuable tax deductions, costing you more money in taxes.
Commingling Funds Can Pierce the Corporate Veil
If you own a limited liability company (LLC) or corporation, you likely chose that business structure to protect your personal assets from business liabilities. However, if you’re using your personal bank account for business expenses or making personal purchases with your business credit card, you could be inadvertently blurring the line between your business and personal finances. In legal terms, this is known as “commingling funds,” and it can put your personal assets at risk by piercing the corporate veil.
If your business is ever sued or can’t pay its debts, a court could determine that your LLC or corporation is just an extension of your personal finances, and therefore, your personal assets are fair game for creditors.
Difficulty Tracking Business Performance
Another reason to keep your business and personal finances separate is that it makes tracking your business performance much more difficult. If your business and personal expenses are all mixed together, it’s hard to determine how much revenue your business is generating and whether it’s profitable. By keeping your finances separate, you’ll have a clearer picture of your business’s financial health, making it easier to make informed decisions and plan for the future.
Tips for Keeping Business and Personal Finances Separate
If you’ve been mixing your business and personal finances, now is the time to make a change. Here are a few tips to help you keep your finances separate:
- Open a business bank account and use it exclusively for business transactions.
- Apply for a business credit card and use it only for business expenses.
- Use accounting software to track your business income and expenses separately from your personal finances.
- Set up a separate business entity, such as an LLC or corporation, to further separate your business and personal finances.
Keeping your business and personal finances separate might seem like a hassle at first, but it’s essential to protect your assets and take advantage of tax benefits.
by Sarah | Mar 19, 2024 | Uncategorized
Stacy’s Success Story: Streamlining Finances for a Booming Catering Business
Stacy, the proud owner of a startup catering business, faced challenges in organizing her finances. With business transactions scattered across personal and business accounts and multiple payment methods, it became difficult for her to keep track of everything effectively. Stacy sought our assistance to achieve a clearer, more efficient financial management system.
Challenges Faced
Stacy’s finances were disorganized due to:
- Mixing personal and business funds, making it challenging to differentiate between them.
- Incomplete tracking of expenses in QuickBooks, leading to potential inaccuracies in financial reports.
- Use of multiple credit cards and payment methods, causing difficulties in tracking expenses and income as well as maintaining records.
The Solution
Our team began by identifying the key areas in need of improvement, then devised a plan tailored to Stacy’s catering business. Here’s how we streamlined her financial management:
- Separating Personal and Business Finances: We helped Stacy set up separate bank accounts and credit cards exclusively for her catering business, ensuring a clear separation of finances. This made tracking business expenses and income more manageable and efficient.
- Expense Tracking and Documentation: We assisted Stacy in recording all personal funds invested into her business, along with any personal loans. This included ensuring all expenses were correctly categorized and documented, contributing to a more accurate financial picture.
- Mileage and Gas Purchases: We worked with Stacy to document and categorize her mileage and gas purchases to determine whether it made better sense to take the mileage deduction or actual costs deduction for her business and making sure they were accurately represented in her financial records.
- Financial Reporting: By organizing Stacy’s finances, we were able to generate reliable financial reports that provided valuable insights into her business’s performance. These reports could then be used for filing taxes and making informed decisions.
Impact
With a more streamlined approach to managing her business finances, Stacy now enjoys:
Accurate and efficient tracking of expenses, allowing her to make better-informed financial decisions.
Time-saving processes due to the separation of personal and business finances.
Reduced stress and improved focus on her core business operations.
Through our tailored financial management solutions, Stacy’s catering business is now better equipped to handle its finances and focus on what matters most: delivering exceptional catering services to its clients.
Interested in how we can help your business through tailored financial management solutions?
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by Sarah | Feb 21, 2023 | Business Tools
Have you built a budget for your business this year? Budgeting for your business is crucial and it is a great tool that helps you see where your cash flow will be throughout the year. Take an hour or so and go through your expected bills and plug them into your accounting software or even just a spreadsheet. Think about what you are planning for sales for the year, do you have a time of the year that is slower?
Helping you plan throughout your year
Plugging those expected numbers in monthly will help you see how your cash flow will look throughout the year. Plugging in your expected income and expenses will help see what months might be a bit lean and what months could have extra cash that can be set aside for the leaner months. Look through your expenses to see if there is anything that needs to be changed or tweaked. Do you have subscriptions that you just don’t use anymore? Maybe you are using three systems to do tasks and upgrading to a beefier system could streamline those tasks and cut down on errors. Is it time to consider hiring more staff?
Fluidity is key
Write out the budget and remember that every budget is out of date as soon as you finalize it. You will not know everything at the beginning of the year that could happen. You will need to adjust as you go when you make changes in your business. It will not work for you and will only frustrate you, if you do not adjust to those changes because you will be comparing your past plan to your current reality. Your business is fluid, you could change your prices, offerings, or systems at any time in the year and that will affect your budget. List anything you want to look closer at and schedule those as tasks on your calendar for later or, even better, delegate the research to a teammate.
Do you need help creating your budget?
This is a great time to look ahead at how you want to grow your business and what you need to do to get there cost-wise. Do you need help with where to begin? Because budgeting for business is so crucial, set up a call with me here and we can walk through the process.
by Sarah | Aug 3, 2022 | Expenses
Everyone in the news has been talking about a possible upcoming recession. Whether or not it comes, the economy has been getting tight for all businesses and is affecting profits. What are some tips that you can use to prepare for harder times?
Recurring Charges
One thing I recommend is to go through your expenses and see if you have redundant or unnecessary expenses. Do you have monthly charges for services that no longer fit your needs? Did you sign up for multiple news services and only have time to read one of them? This is especially true for things that you were using and it is auto-charged so you don’t even think. Until it renews for another year. Do you have a subscription service for office supplies that are purchased on a regular basis? You may have enough on hand right now to skip a few months.
Fuel
Another savings area is fuel costs, especially in the current economy. Have you kept up with maintenance to ensure your vehicles are running properly and efficiently? There are tons of tips on the internet that can help save fuel costs. Some of my favorites are not letting the gas tank go lower than half and accelerating at a steady pace. If your fleet is older and needs replacing, make sure to look for more fuel-efficient vehicles.
Credit Card Fees
One last tip that I have is to review the fees that you are paying if you accept credit cards. If it has been a while since you reviewed what you are paying in merchant fees, reach out to a few companies and see if you can get a better rate. I don’t have any that I strongly recommend but I don’t recommend Square if at all possible due to high fee rates. Now that most companies accept credit cards, those fees can add up quickly. Especially if you do a lot of smaller charges because there is a per charge fee as well as a percentage of the sale.
Make it a Habit
If you go through your expenses and look for waste, you can put your business in a much better state whether or not we end up in a recession and will raise your profits. I recommend doing this annually when you are working on your budget for the upcoming year.
by Sarah | Mar 7, 2021 | Business Tools, Uncategorized
Why is Audit such a bad word that gives people nightmares? I know that most people flinch when they hear the term audit because they automatically think of the IRS or other government agencies but it doesn’t have to be a bad word. Audits are really just in-depth reviews of certain things, usually your expense accounts. You can find out important information if you really look into your accounts.
Accounts that need minimal review
What accounts should you review? Really, all of your accounts should be reviewed on a regular basis. Some could use more insight than others. For example, your utility bills rarely change but during certain times of the years, is your electric or gas usage getting too high or has your internet and phone package been inching up? Your utilities only need a review yearly or seasonally and do not need to be reviewed too closely each month but other accounts may need to be reviewed much more often.
Other Accounts need frequent review
Do you sit down and review your job materials and labor or your vehicle maintenance on a monthly or semi-monthly basis? These can change drastically depending on how busy your business is. Did these accounts go up when you were busy and not come down when your business slowed down? Did some processes quit working for you and are costing you more money now? Have the job costs gone up but your pricing hasn’t? Are your vehicle costs inching up or the gas usage getting worse?
How to use the reviewed information
A great way to make sure that you know exactly where your profits are going is to review the costs on a regular basis. Make sure that all non-used project items are returned and that the credits are actually received. Look to see if your vehicles are not starting to cost more to maintain than they are worth. Other accounts to watch carefully are shipping and freight, can you combine orders throughout the day to meet the minimum amount for free shipping or will a vendor offer discounts or free shipping if you order more of your regular purchases through them?
If you do not know exactly where your money is going, you do not know how you can cut costs or if you need to raise your rates. You won’t know the best way to invest better in your company if you don’t know what isn’t working anymore. Please set up a call with me here if you need help to audit your expense accounts.
