If you have only one account for your personal and business finances, then it is a must to separate these finances. Having separate accounts for both is a vital tool that any company should have. Not only does it make your accounting cleaner, but it also allows you to see how well your business is doing. Thus, for you to know more, here are the reasons why you should separate these two finances.
WHY PERSONAL AND BUSINESS FINANCES SHOULD BE SEPARATED?
Keep in mind that your business should exist as an independent and separate entity from its owners. There are many reasons why you should separate these two finances. These reasons will include:
- Your business is taxed separately from your personal finances.
- This can allow you to know the financial performance of your business.
- If your finances are not separated, then it might be difficult to audit when both finances intermingle.
THE BENEFITS OF SEPARATING YOUR PERSONAL AND BUSINESS FINANCES
REDUCE THE AMOUNT OF TAX YOU HAVE TO PAY
One benefit of separating personal finances and business finances is that it can help you with your taxes. It will be easier for you to provide an accurate record of your business finances. In turn, this will help you when you are going to file for your taxes, specifically the taxes on your business. If you are paying your business expenses through your business account, then you have to take note that some of those expenses can be used to deduct the amount of tax you need to pay.
The Inland Revenue Authority of Singapore has a list of deductible and non-deductible business expenses. Examples of deductible business expenses include advertising costs, telephone charges, business rent, and so forth. However, there are business expenses that cannot reduce the amount of your tax. These are called non-deductible business expenses. Examples of these include your salary, medical fees, donations, and so forth. Keeping receipts and invoices will not only help track payments, but these can support your claim to help deduct your taxes.
If you want to know more about these kinds of taxes, then you can visit the website of the Inland Revenue Authority of Singapore.
FOR AUDITING PURPOSES
Separating your business finances and personal finances can save you time and effort when the Government will audit your business. By having separate accounts for both, it will be easier for you to comply with the requirements that the Government has set. Keep in mind that they will take a look at your supporting documents, financial reports, tax returns, and many more. It will be easier for you to produce the expenses that pertain to your business when you separate these two finances.
Also, by keeping these two finances separate, you can help eliminate doubt that you are using your business account to pay for your personal expenses.
Every entrepreneur knows that putting up a business is a gamble. There may be times when your business will encounter difficult times. Thus, it is important to save some of your income before you spend it on anything else. Should your business experience difficult times, your savings will help mitigate your expenses.
EASIER FOR YOUR ACCOUNTANT
A rule in separating your two finances is that you should only use your business account to pay for your business expenses. This rule is the same for personal expenses. Thus, it is a must to separate the receipts of both finances. It will make it easier for you or your accountant to file your taxes, and to produce the needed documents if the Government will audit your business. If your accountant wanted to look at your business expenses last year, then it can make it easier for your accountant to search for those files.
Also, it can be easier to analyze and to manage your cash flow because you were able to segregate your expenses and receipts. It is easier for you to see whether your business is performing well or not.
APPLYING FOR A CREDIT CARD FOR YOUR BUSINESS
Having a credit card for business purposes has numerous advantages. One advantage is that you have the chance to establish and to improve the credit history of your business, which can increase your chances of being granted a loan. Another advantage is that this can allow you to separate your personal and business expenses. However, for you to avail for a business credit card, your bank will need to see the financial status of your business, and not your personal finances.
ARE YOU LOOKING TO EXPAND YOUR BUSINESS?
If you are looking to expand your business and you need the capital to make it happen, then you can avail for a business loan. However, for this to be possible, you need to show the bank or the moneylender that you have a profitable and sustainable income, which is why it is a must to separate your business and personal finances. Your bank or moneylender will look solely at your business credit, financial records, income, and many others.
If you are not keen on making a transaction with a bank, then you can always make a transaction with a moneylender. However, keep in mind that you need to choose a licensed moneylender who has good customer reviews. If you are looking to get a business loan, then choose Bugis Credit! They can help provide you with financial assistance for your business expansion. Just click their website, and make your loan!