As a business owner, you have two areas of your life, personal and business. In your personal life you need to manage the personal finances and home affairs. In business, you need to manage your business finances, employees, products, services etc..
From a business point of view, it might seem easy to lump personal and business finances together, but as a sole proprietor, this is a bad idea.
Financial Records
As a sole proprietor, you don’t have to keep these records separate, but for bookkeeping purposes it is much easier to figure our what expenses you can claim, what is your true income, etc. for your bookkeeper and tax person.
Co-Mingling Finances
When you co-mingle finances together, you can very quickly lose sight of how your business is really doing. It is also a good idea to keep them separate to know which assets are part of your business and which are personal.
If you mingle the two types of finances, you can make it difficult to report to the IRS obligations each quarter. Very few personal expenses qualify for tax deductions, but many of your business expenses are tax-deductible and will benefit you at the end of the year.
Using A Business Name
In running a business, you want to run the business under a business name registered with the state. This is often done as an LLC in the State of NH. This clearly separates your personal life from your business life.
Business Banking
Once you create your business name you are then obligated to deposit all monies paid to that business into a business account. This further separates your personal life from your business life. Then, just as if you were working for someone, you write yourself a payroll check each week.
Resist Using Business Monies
In your personal life you may encounter challenges that tempt you to rob money from your business to pay for personal issues. Resist this temptation! Keep your business completely separate from your personal life. You should write yourself a payroll check each week that satisfy’s your personal needs and keep the rest in a business checking account. Any overflow that you have in the business, put in a business savings account. This will get it out of the immediate path of spending.