Nothing personal: Why you need to keep small-business finances separate

When you pour as much of yourself into a venture as small-business owners do into their companies, it can be difficult to make – and enforce – boundaries between what’s business and what’s personal. Living and breathing your small business is, to an extent, necessary. Without devotion and a willingness to do whatever is necessary, your business wouldn’t be as successful as it could be.

But not properly defining and separating your business finances from your personal finances could have consequences that stretch well beyond your business.

The line between what’s business and what’s personal is blurry for a lot of small-business owners, but there are many reasons to make sure that there is a clear delineation. When items clearly meant for business purposes show up on family credit card statements, it can create uncomfortable situations. And when personal expenses show up on business cards, your accountant may not be very happy.

Beyond that, the IRS is much happier to see you keeping things strictly business. It’s also far easier for you, come tax time. When you don’t have to search across all of your personal accounts to find business expenditures and income, you’ll save yourself time and frustration if they are all in one place. Clean records that are filled with just the information you need will make filing faster and simpler, and can be an asset if you’re ever subject to an audit.

As businesses grow, the need to keep finances separated increases. And if you’re changing the way your business is organized, it often becomes essential, as in the case of incorporation. The good news is that even if you’ve been mixing business and pleasure up until now, it’s relatively easy to make the change.

Of course, having separate bank accounts and checks for your business is the first step. Keep in mind that business checking can incur expenses that aren’t associated with personal accounts. You may need more expensive, ledger-style checkbooks, and banks often have monthly fees (or sometimes per check) associated with business accounts, as well as minimum initial deposit and balance requirements.

You should also consider the advantages – or necessity – of having business charge cards or credit cards. It’s also important to note that there is a difference between the cards, despite the fact that many people use the terms interchangeably. Charge card balances generally need to be paid in full each month, whereas you can carry a balance from month to month on a credit card.

Charge cards often have more rewards associated with them and the ability to earn points more quickly. And while not all credit cards have annual fees, most charge cards do.Within each category of cards, there are plenty of options, so you’re sure to find an option that’s right for your business.

Products like the Business Platinum or Business Gold Rewards cards from American Express OPEN offer different levels and kinds of rewards but offer the flexibility of purchasing power that can evolve with your business. And with the opportunity to accrue reward points at an accelerated rate, the benefits stretch beyond interest-free payments (when made on time).

Keeping business expenses confined to dedicated accounts and cards will make your finances easier to track, and any small business owner knows that cutting down on complications is always a good thing. The added benefit is that you’re also protecting your personal finances and keeping everyone – from your family to the IRS – happy.

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