What best practices should small business owners follow in order to have a healthy business and healthy personal finances? The line doesn’t have to be blurry, it’s easy for small business owners, and nearly a requirement, to setup a separate bank account for their businesses. All income from the business should be deposited into that account, and any business-related expenses should be paid out of that account. A CPA can help determine what is and isn’t a “business-related expense.”
Keeping finances separate is important for two main reasons:
- It’s easier to calculate taxes. By keeping everything neat on the front end, it’s easier for a CPA to determine income taxes, sales taxes, and any other taxes the business needs to pay. If the expenses aren’t kept tidy, it’s more expensive for the CPA to fix it on the back end. And they may not capture every expense accurately.
- Most business owners will want to eventually sell their business. To do that, it’s important to have clear and well-done financials.
How do you determine how much you should pay yourself? A business needs to earn enough money for the owners to meet their needs and their desired lifestyle. So business owners need to figure out what that number is, and plug that into their business budget. Once other businesses expenses are added to the budget, the owner will have a clear goal for their monthly revenue.