Keeping your business and personal finances separate is a great way to avoid headaches and keep your budgets balanced. Many people make the mistake of combining their personal finances with business or work related ones, and find themselves in a world of trouble. Avoid the common pitfalls that many people make when they attempt to merge business and personal finances.
Small Business Owners
The biggest group of offenders when it comes to mixing personal and business finances is small business owners. Many people start small businesses with their personal savings, income and credit cards. This may be acceptable in the beginning and start-up stages, but as the business grows, these accounts should be kept separate. Opening a small business checking account is the best way to distinguish between personal finances and business expenses. In addition, keeping separate accounts will help you get a better financial picture of your business growth.
When you’re taking a client out for coffee to discuss a new account, it’s often easy to simply pull out your personal credit card than to go to the trouble of using the company account. Many executives wonder why they should go to the trouble of filling out expense reports and saving receipts when they can simply whip out their credit card and pay for the charges themselves.
Most companies have strict policies against mixing personal and company finances, and for good reason. For one thing, it is difficult to reimburse an employee for charges made on his personal account without arousing suspicion. Using personal finances to cover business expenses can cause legal headaches for the company if you are ever fired and decide to sue them for the money you have spent. It can also send up red flags for auditors and accountants who manage the company’s finances.
If you need to make a purchase for business, use your company credit card or expense account and keep all receipts. Even if the purchase is small, never use your personal funds for company expenses.
Teachers are notorious for mixing personal and business finances. They are often tasked with teaching their students with limited materials, so they dip into their own money to purchase supplies for their classrooms. Often they are not reimbursed for these purchases. This can create headaches for the teacher at tax time when they may want to claim tax credit for the money spent. In order to avoid confusion, keep a detailed listing of all supplies you spent for educational purposes and make copies of the receipts.
Non-Profit Business Professionals
Professionals who work for non-profit organizations have to be especially careful about mixing company and personal money. Non-profits accept public donations and enjoy certain tax breaks. In return, they have to follow stringent guidelines that govern how the business is run. Their financials are transparent, and each penny spent must be accounted for. Using company money for personal expenses or vice versa is a serious violation of the rules that non-profits are required to follow. Some executives have even been sued for breaching this rule. Keep a separate account for business expenses and never dip into it for personal reasons.
Social workers, police officers and administrators are just some of the few government employees that have to worry about keeping business and personal accounts separate. Using government money for personal expenses can land you in legal hot water. Many government employees have been fined and even jailed for misusing public funds. Even an accidental breach can spell trouble. Keep your personal expenses separate and ask for reimbursement for any supplies your job does not cover. It’s best to cover all of the bases and protect yourself from liability.
Keeping your personal finances separate from your business ones is essential to keeping out of trouble in the workplace and in business. Maintaining separate accounts can also save headaches during tax time. Take steps to create accounts for all of your financial needs.