Tips to Balancing Your Personal vs. Business Finances

For solopreneurs or owners of microbusinesses — small businesses with nine or fewer employees — it can be difficult to manage both your personal and business finances. You might find it easier to mix them together, or some months you might find it difficult to remember which expenses were specifically for your business.

And while you know how important it is to maintain proper bookkeeping, we know it’s challenging to manage your money on both the personal and business sides amid the busyness that comes with running your own company.

To help you stay on top of both accounts, here are some tips on balancing your personal and business finances.

Personal Finance Tip: Always Keep Separate Accounts

If you mix your personal and business finances, you’ll soon discover how time-consuming it is to separate your transactions come tax time. Don’t commingle your finances. Instead, keep your personal and business expenses separate whenever you can with different bank accounts and credit cards.

Once you form your legal business entity, it’s much easier to maintain a separate business bank account. So if you formed your company as an LLC, S Corp, C Corp or a nonprofit, you should open a new account to handle your day-to-day business transactions. As for credit cards, you don’t necessarily need to have a business credit card — but if you do use a credit card, it’s best to keep one exclusively for business-related expenses.

Keep Careful Track of Expenses You Can’t Separate

For freelancers and other small business owners — especially those who work from home — separating business and personal expenses may not be entirely possible, points out Katherine Pomerantz, founder of The Bookkeeping Artist.

That’s because assets and expenses such as your cell phone, computer, Wi-Fi, home office and car could pull double duty. If your small business doesn’t provide you with a designated work phone or an office space, Pomerantz suggests using a time tracker.

“Record the time you spend on your phone or using your home internet in order to know exactly what percentage of your total bill you can write off,” she says. “For your personal and business car, use a mileage tracker to keep a driving log and automatically log business miles.” 

Create a Budget for Your Business Expenses

Creating a spending plan for your personal expenses is a classic personal finance tip — but you’ll also need a budget for your business expenses. You’ll want to keep this money on hand in a dedicated business bank account.

First, you need to understand what the costs are to start a business. Business-related expenses can include:

  • Health care insurance
  • Dental insurance
  • Long-term care insurance
  • Marketing expenses such as web hosting
  • Hiring independent contractors such as tech support
  • Meals with clients
  • Work-related travel and conferences
  • Materials, supplies and equipment for your business

Wondering whether you can write off a certain expense? For a business expense to be tax deductible, it must be considered ordinary and necessary for your line of work. So if you’re hoping that inflatable golden swan you used for a prop at a client party can be written off…you might be out of luck. (When in doubt, consult a tax professional.)

Cancel Expenses You Don’t Need

There are a swath of tools, services and apps designed to help you run your business more efficiently. But if it’s not helping with your bottom line, it’s a wasteful expense.

One of the simplest but most impactful business finance tips is to regularly review the recurring expenses you have and cancel anything you are not getting your money’s worth from, recommends Tai Stewart, founder of Saidia Financial Solutions.

“If you sign up for a hot new app or software service that promises to help grow your business, but you haven’t used it after several months or can’t figure out how it will help you, it’s best to cancel it,” says Stewart.

To find more money to put into your business, you can also comb through your personal budget and cancel subscriptions you aren’t using. Next, drum up ways to cut back on expenses, such as on food, housing and transportation.

If you’re doubling up on personal and business expenses in some categories, see if you can nix one of your bills or reduce what you’re paying. For instance, if you work at a co-working space during the week, do you really need high-speed internet when you’re at home? Or can you bump down your internet service to save money? The cash you save on your personal expenses can go toward growing your business. 

Reinvest Your Business Income

If you’re just starting out and exploring a new business idea, it could take a while for you to make enough income to live on. If you’re starting out your small business as a side venture in addition to working a day job, keep reinvesting your business income into your company until you can afford to pay yourself a small wage, suggests Stewart.

Look toward your budget for personal expenses to figure out how much you need to cover your bills. Next, try to pay yourself an income that meets 10 percent of your personal expenses. As your business grows, bump up your salary to 20 percent (and so on).

Balancing your personal and business expenses requires applying classic personal finance tips along with business finance tips. By staying on top of both, you’ll have an easier time using valuable financial data about your business to identify patterns, trends and cycles. In turn, you can make the best decisions for the growth and success of your company.

If you need help managing your business finances, Incfile is here to help. To get started, we recommend scouring the wealth of resources and materials on the Incfile Learning Center.

Jackie Lam

Founder at Cheapsters
Jackie is the founder of Cheapsters, a website dedicated to helping freelancers. She is passionate and dedicated copywriter and personal finance writer with nearly 10 years experience in copyediting, proofing, copywriting, photo research and licensing, production coordination, and blogging. Her specialties include: personal finance for millennials, long-term finance goals, budgeting on a variable income, and small business finance.
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