How Entrepreneurs Can Separate Their Personal and Business Finances

1. Apply for a different business bank account

Keeping personal and business funds in two separate accounts reminds you of where to get or put money whenever there's a need or opportunity.

A personal savings plan is a great way to secure your short and long-term goals, such as an educational fund for your children, a down payment for your dream house, retirement, or pocket money for periodic travels. Meanwhile, opening a business bank account puts you in a safe and convenient financial position. For one, you're aware that you must use it exclusively to pay salaries and bills, buy supplies and equipment, and collect payments from clients or customers.

A dedicated company bank account also lets you avoid any confusion or uncertainty when the annual tax period comes, as one look at your bank statement can easily reveal how much money your business made and spent.

Most companies go for a business checking account to ensure that only authorized company officers have access to the funds, so this may be worth considering.

2. Get a business credit card

Besides a business checking account, a company credit card is also a must-have. You'll need this when representing the company in local or international events, meeting with clients, and paying for other business-related expenses. Without a business credit card, there's the risk—and temptation—of swiping your credit card, only to regret it later when your credit limit gets maxed out. Plus, business credit cards typically come with bigger rewards than the ones offered by your credit card provider, so you might as well use those perks to save on some of your business expenses.

3. Keep receipts as paper trail

Business receipts are heaven-sent for your auditing team, as long as you make a conscious effort to secure them whenever you spend money on company expenses. From meals to gasoline for the company car and business insurance, the receipts from these deductible expenses will make it easy for you to file for tax exemptions. 

4. Track all your financial transactions

This item in the list is ultimately the why of it all; it's not only a piece of advice, but this end goal can spell a difference on how you can be more effective in managing your overall finances. Here, it's crucial to keep tabs on both your company's payable and receivable accounts. This strategy can help you spot any discrepancies or potential issues in your books. Just like with personal finance, the ideal situation is for your business to have more receivables (income or payments collected) than payables (expenses), as that means you can adequately fund your operations. Without a healthy balance in your business finances, you might be forced to draw on your savings account to make ends meet for your company.

If you already have a management system and strategy for your personal finances, then you can try applying this to your business. However, consider that you are obviously dealing with larger amounts of money. Eventually, having systems for both finances for every transaction will create a harmonious financial cycle.

5. Include yourself in the payroll

Receiving salary from the business end of your finances makes things official. It means that as an employee, you should not meddle with the company's funds since your role is to perform relevant tasks while getting paid for your service.

From a business owner's perspective, you're encouraged to follow a fixed schedule of when you're allowed to take a portion of your business money to put toward your account. That makes payday the only reason and time you should be drawing on the company funds. Plus, this move can contribute to a sense of fulfillment, knowing that you're managing the business well enough to merit yourself a regular-paying salary. That should inspire you to work harder to sustain success and continue receiving your paycheck. 

6. Allocate personal and business emergency funds

Save something for a rainy day, as the saying goes. That applies to both your personal and business finances. You never know when an emergency will happen, such as a sickness in the family or perhaps this COVID-19 health crisis that continues to prevent you from operating at full capacity. These critical situations will make you realize the need to be prepared financially for every possibility. At the minimum, your emergency fund should cover three to six months' worth of your living expenses.

However, you should be more ambitious when it comes to business emergency funds, as you will need to pay your employees, stock up on inventory, settle invoices, and so on.

Nothing Personal, Purely Business

Business is a demanding venture; things can get really busy and cause you to lose track of costly financial mistakes. When you let your business funds get tangled up with your money, you may end up sacrificing your goals for one over the other in the long run.That shouldn't be the case, though. Keeping business and personal finances separate not only makes you a successful entrepreneur but also puts your life goals within reach—just like with BPI AIA's savings plan, which lets you save and grow your money through investments while you live the dream of a healthy, happy life with an insurance benefit. Talk to our agent about BPI AIA's Build Life Plus via virtual consultation.