Whether you’re a sole trader or in an alternate business structure, managing your personal and business finances separately is essential for good financial management.
We know it’s not uncommon to use personal savings, particularly when bringing your business idea to life, but as your business grows, it’s important to track business and personal incomings and outgoings separately.
Spot The Difference
There may be instances where you have expenses that could be classified as both business and personal use. For example, if you work from home you might have one mobile for both business and personal use. In this case, you need to work out how much of the expense is personal and how much is business, as you can only claim a deduction for the amount related to business use.
Without a realistic budget based on the costs and demands of your business, it will be difficult to distribute cash to the places that need it most in your business and help grow your revenue and improve cash flow. Allowing complete separation between finances will save you time in identifying the difference between personal and business expenses too.
Instead of spending hours trying to find each transaction and losing out on deductions, you could maximise them. Having two separate accounts and up-to-date records all year long will provide you with proof of your business expenses in case the Australian Tax Office (ATO) queries any claims or you are audited.
When establishing your business identity, having a dedicated business account will help you (and your accountant) draw a clear line between personal and business expenses. It’s also gives you an opportunity to appear more professional and demonstrate to any future lenders your business’ full financial records.
If you run your business through a partnership, company or trust you must have a separate business bank account in the company or trust’s name for tax purposes.
Is it time your financial records had a health check?
Talk to us to arrange a consultation.
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