It takes a great deal of focus and determination to make a small business successful. And as your business grows, managing the finances only becomes more difficult. Especially if you haven’t separated your business finances from your personal accounts. Maintaining separate accounts not only simplifies your budgeting, but it also provides a clear picture of how successful your business really is and reveals opportunities to achieve greater efficiencies and enhance profits.
Set up an EIN.
The first thing you may want to do is set up an employer identification number (EIN) with the Internal Revenue Service (IRS). The process is simple and can be done online. An EIN is an alternative to using your personal social security number for business purposes. Every time you provide your social security number, you run the risk of becoming a victim of identity theft. An EIN provides greater protection for your personal finances.
Incorporate your business.
Small business owners may also consider legal separation of personal and business by establishing a corporation or limited liability company (LLC). Incorporation provides a legal boundary between your personal and business finances. This provides small business owners the opportunity to file business income tax separately from personal taxes. Filing separately is vital to maintaining good financial health for your business. The process may also protect your personal assets if your business is ever sued.
Establish a business account.
Now that your business is clearly separated, it’s time to consider opening a business account to delineate personal and business finances. Doing this allows you to keep a better record of both, and it’s a good way to understand how your small business is performing. Separate accounts free your family members (or other shared personal account holders) from having to determine business expenses from personal, and it allows you to make day-to-day business decisions based on real-time financial data. Business accounts might have different fees and requirements than personal accounts but the functionality is essentially the same.