Drew Lyon's Tips About Mixing Personal and Business Banking
Starting a business is an exciting venture, but it can also be overwhelming. It's easy to get caught up in the day-to-day operations and lose sight of the bigger picture. One area that can quickly become tangled is your finances. Whether you're just starting out or have been in business for years, mixing personal and business finances is a common mistake.
However, it's important to keep them separate to avoid potential legal and financial issues down the line. Focused Energy's founder Andrew Lyon shares his insight on money management with the Forbes Finance Council, and the implications it can have down the line.
"Running a business is difficult, and while having clean books is important, so is your sanity," says Lyon. "Take the time to review your accounting each month so things don’t get out of control come tax time."
For one thing, doing so will make it much easier to figure out what you can deduct and what you can't at tax time, and it will also make it easier to grow your business or even sell it.
Mixing personal and business expenses is a common mistake many business owners make, but it can have serious implications that are often overlooked. For starters, it can lead to inaccurate financial reporting, making it difficult to determine the true profitability of your business. Additionally, it can raise red flags during an audit, potentially resulting in penalties or even legal action.
To avoid these issues, it's important to keep your personal and business finances separate. This means opening separate bank accounts and credit cards and using them exclusively for their intended purposes. It may also be helpful to set a budget for both your personal and business expenses, to ensure you're not overspending in either area.
One often-overlooked reason to keep personal and business expenses separate is the potential impact on your personal credit score. If you're using personal credit cards or loans to finance your business, any missed payments or high balances could negatively impact your credit score, making it more difficult to qualify for personal loans or credit in the future.
Importance of Clean Books and Review Systems
Clean books and review systems are crucial components of effective financial management for any business. Having accurate and up-to-date financial records helps you make informed decisions about the direction of your business, and ensures that you're on solid footing when it comes to tax time. Additionally, regular reviews of your financials can help you identify areas where you may be overspending or over-investing, allowing you to make adjustments and optimize your finances for maximum growth and profitability.
But beyond just the practical benefits of clean books and review systems, there's also a psychological advantage. When you know that your financials are in order, you can approach your business with greater confidence and clarity. You'll have a better understanding of your cash flow and expenses, and be able to make more accurate predictions about future revenue and profitability. This can help you make smarter decisions about hiring, investing in new technology, or expanding your product line.
Moreover, clean books and review systems can play a critical role in attracting investors or buyers if you ever decide to sell your business. Potential investors or buyers will want to see that your financials are in order and that you have a clear understanding of your business's financial health. Having well-organized financial records and a regular review process in place can help demonstrate your business's value and potential, and make it more attractive to potential buyers.
In short, the value of clean books and review systems cannot be overstated. By investing the time and resources into keeping your financials in order, you'll not only avoid potential legal and financial issues, but you'll also have a clearer understanding of your business's true financial health, and be better equipped to make smart decisions and achieve long-term success.
Key Takeaways
Overall, the key takeaway is that while it may seem easier to mix personal and business expenses, the long-term implications can be significant. By taking the time to keep them separate, you'll not only avoid potential legal and financial issues, but you'll also have a clearer understanding of your business's true financial health.
Contact us today and see how we can guide you through whatever comes next in your business journey.
