Imagine you start tracking your calories to get into shape. You are hitting your calories every day according to myfitnesspal, but you’re not seeing any progress. Then your coach asks you, “are you tracking everything?” And you realize you haven’t been tracking that handful of nuts you have as a snack each day. It will be clear that if you are not tracking all these random snacks, it will be very difficult to actually measure your results.
Let’s apply this to business.
One of the simplest things you can do when starting your business is separate everything. All you need to do is open a new bank account and/or credit card, and be disciplined to use it solely for business purposes.
1. When you are constantly taking money out of the business account for personal reasons, it becomes very difficult to track your profitability. You’ll likely forget whether you took the money out for a business expense or a personal expense. And if you can’t remember, your accountant definitely won’t know.
2. If you keep taking money out for personal reasons, you’re either loaning the money to yourself, or will need to declare this as a salary or dividend, which will be taxed personally and can lead to a tax bill much higher than you originally expected.
Whether you’re self employed or have established a corporation, it is crucial that you keep these things separate.
Do you keep yours separate? Let me know in the comments.