From tracking expenses via separate spreadsheets to trusting an accounting platform, here are eight answers to the question, “how do you separate business and personal expenses?”
- Use Separate Spreadsheets to Track Expenses
- Set Up a Dedicated Bank Account
- Authorize a Trusted Partner on Personal Accounts
- Draw the First Line by Getting an EIN
- Write Yourself an Employment Contract as an “Employee”
- Track Expenses With an App Like Mint
- Be Honest With Itemizing
- Try an Accounting Platform
Use Separate Spreadsheets to Track Expenses
I use a spreadsheet to separate my business and personal expenses. I create a separate sheet for each type of expense and then enter all the relevant information for each sheet.
This way, all of my business expenses are documented in one place, and all of my personal expenses are documented in another place. This helps to keep things organized and prevents any mix-ups when it comes time to do my taxes.
Matthew Ramirez, CEO, Rephrasely
Set Up a Dedicated Bank Account
This will ensure that all income and expenses related to your business go into the same place, making it much easier for you to monitor and manage them. Having two accounts will make filing taxes and other financial documents much simpler. Setting up an online accounting system can help keep track of everything in one place.
Last, it’s important to use a credit card specifically for business purchases; this will make reconciling transactions at the end of each month much easier as well. By following these steps, you’ll be able to easily and effectively separate your business and personal finances.
Brian Lim, CEO, iHeartRaves
Authorize a Trusted Partner on Personal Accounts
For some business owners, it can be tempting to dump all of their personal wealth into their business. This can be a dangerous move, as it can leave them vulnerable and without a financial safety net if the business fails.
Having a trusted partner authorized on your personal account can be a great way to ensure that you are not taking from your own pockets first to fund your business. This partner can act as an accountability buddy to help keep you from making rash decisions with your finances.
Having a partner to help you manage your finances will help ensure that you are making the best decisions for your business and for your personal financial health.
Michael Alexis, CEO, tiny campfire
Draw the First Line by Getting an EIN
Many first-time entrepreneurs and business owners make the mistake of continuing to run their business operations from their social security number, with a sole proprietorship or some LLCs.
Applying for an employer identification number (EIN) is the first step you should take when looking to keep your finances separate, as it will allow you to fully separate yourself and your business as far as the IRS is concerned.
You can think of the EIN as the business version of your social security number for doing business income tax or payroll tax returns.
Kate Kandefer, CEO, SEOwind
Write Yourself an Employment Contract as an “Employee”
Despite owning my company, I deliberately treat myself as an employee, with my terms of engagement (including remuneration packages) with the company concisely documented in an employment contract.
The hierarchy is clear: the company is my boss and pays me a defined salary stated in my contract, and I effectively become a guardian—not the owner—of the company’s finances, forcing me to curtail all my expenditures within my stated salary.
And what if my personal expenditures exceed the allocated remuneration package in my contract?
Well, I sort myself out like any other employee would, whether by taking a loan from friends or selling my stuff. Simple!
Oh, but shouldn’t I give myself treats as the owner of the company?
Make provisions in your employment contract for performance-related bonuses. Beating KPIs doesn’t justify the lawlessness of invading the company’s finances, all in the name of rewarding yourself as the boss. If your employees can’t, then you shouldn’t be able to!
Lotus Felix, CEO, Lotusbrains Studio
Track Expenses With an App Like Mint
Using a spending tracker like Mint can be a great way to separate personal expenses from business expenses. Mint allows you to create separate budgets for both personal and business expenses, and you can easily track your spending in each budget.
You can also set up notifications to alert you when you are nearing your budget limit for either personal or business expenses. Mint also provides helpful insights into your spending habits, allowing you to make more informed decisions about how to best manage your finances.
With expense tracking apps, you can easily keep your business and personal expenses separate, making it easier to manage your finances.
Grace He, People & Culture Director, teambuilding.com
Be Honest With Itemizing
Keep an itemized list of your expenditures and keep it honest. It’s easy to call a personal expense a business expense and vice versa if you aren’t tracking your expenditures carefully.
By keeping a divided and itemized list of your business vs. work expenditures, it can become more easily apparent what expenses are and aren’t necessary for running your business. If you notice you’re spending business funds on personal items, you’ll know it’s time to take stock of this behavior and eliminate it, especially if it’s hurting your business.
The most important part of this process, however, will be your honesty. You need to accept and change any errant behavior brought to light by your itemizing. Take honest stock of your expenses. It can help you separate your business and personal expenses and get control over your spending.
Max Ade, CEO, Pickleheads
Try an Accounting Platform
An accounting platform like QuickBooks or Xero will allow you to easily divide transactions and keep them separate. You can tag all transactions differently and categorize them as personal expenses or business expenses. You can even categorize them further with more details, which provides tons of insight for you, your company, and your accountants.
New technology is the answer in many areas of business, like to-do lists, project management, communication, and more. New tech is also the answer for tracking transactions and expenses. The right platform can make it easier than ever to track expenses and keep track of your accounting.
