When you’re working all hours to set up and run your own business you put your everything into it – and that’s no bad thing to begin with. But as time goes on you can find that the boundaries between your personal and professional lives start to blur. It’s really important to maintain those distinctions though, especially when it comes from to your finances.
Create a Legal Distinction
If you currently operate as a sole trader, you may draw little boundary between your personal operations and those of your business, but setting the company up as its own legal entity protects you more. Your personal assets will them be protected from any debts, lawsuits or losses incurred by the company and protect you from financial mistakes. There are a few different ways to structure the company, so find a business law specialist to advise you.
Keep Business Credit Separate
It’s definitely sound practice to separate out any personal credit arrangements from those your company needs to operate. Knowing how to improve credit score means access to the most favorable rates when it comes time to access some finance. Most business credit transactions will not appear on your personal credit report, although you may appear as a linked account. Building up your company credit establishes the legitimacy of the business and helps you to qualify for business loans.
Make Sure You Draw a Salary
When getting your company off the ground, many small business owners do not pay themselves for a long period of time. But there are good reasons to establish a monthly transfer from your business current account to your personal one. It stops the temptation to have a fluid view of your finances where you draw on company money in hard times. If you run out of cash until payday, you’ll have to behave like any salaried employee and tighten your belt until payday.
Track Your Expenses
A big advantage you will have is that a lot of your expenses are now tax-deductible. So if you’re taking a client to lunch or filling up the car for business mileage, you can claim those costs back. Again, make sure that any personal transactions are kept completely separate, even if it means asking a cashier to ring you up twice. That way you maintain the integrity of your business hygiene, make things a whole lot easier for your accountant and keep a separate financial log that will make things significantly less complicated as your business grows, such as how to claim business lunches.
Set Your Goals
Just as you should set personal financial goals, so you should set separate business ones. For each category, take a look at your profit and loss/ incomings and outgoings, cash flow statements and balance sheets for several months to get an accurate picture of the situation. Then assess what you need to do in order to get where you want to be in each case. Small steps make the biggest difference in each case, so look at introducing incremental savings at home and in the office to start inching closer to what you’d like to achieve.