Managing your finances is the foundation of your success whether it’s business or personal finance. Finance is the lifeblood of any business which is an essential resource to keep a circulating valued economy and generate cash flow to your business. Many entrepreneurs when starting a business use their personal bank account to finance their business operations. It can be feasible at first when you’re just at the early stages of your business, but it is not advisable in the long-term growth of your business. On the contrary, personal finance is what pays the monthly bills, mortgages, and investments which is also a necessity for your lifestyle. Setting boundaries between business and personal finance is a critical part in financial management and the long-term success of your business.
Intertwining business and personal finance can create financial stress in the long run. For businesses, managing your finances is essential for business legal compliance, maintaining a positive financial health, and long-term sustainability. On the other hand, setting a boundary for your personal finance can help you achieve your personal finance goals, tax management, and personal liability protection. By reading this article, you will be able to understand the importance of separating business and personal finance and how you can effectively manage, strategize, and make better decisions towards your finances.
What is Business Finance
Business finance refers to the management of money and financial resources within a company or organization. Business finance involves the acquisition, allocation, and utilization of financial funds to support business operations such as investments and leveraging debt for the growth of a business. Business finance also involves a variety of financial decisions such as budgeting, planning, cash flow management, risk management, financial analysis and reporting. With proper management of business finance, it is easier to understand and make better decision making in expanding your business.
What is Personal Finance
Personal finance refers to the management of financial resources which an individual or a family performs to budget, save, invest, and spend on bills and utilities. Financial budgeting in a typical Filipino household is done bi-monthly or monthly in order to allocate financial resources effectively. Managing personal finances ensures that day-to-day needs are met. Setting boundaries between your business and personal finance can make it easier for you to achieve success on your financial goals, and protect you from liabilities.
10 Reasons Why You Should Separate Business and Personal Finance
- Personal asset protection
As an entrepreneur, protecting your personal assets is one of the things you can do to set boundaries between your business and personal finance. Separating business and personal tax helps maintain the legal separation between you as an individual and your business entity. No one would want to lose their hard earned money, assets, or savings down the drain in case their business goes bankrupt. In case of debts, legal issues, or audits, you as an individual, your personal assets are well protected.
- Peace of mind
Dealing with personal financial problems is stressful enough. Not having the certainty of your income if it would pay the bills for the month, or when you have to suddenly spend money when emergencies occur. Separating your business and personal finances can help you mitigate the confusion and stress knowing that your personal financial matters are recognizable from your business financial affairs.
- Financial clarity
Separating your finances makes it easier for you to visualize and create milestones for your financial resources. This allows you to clearly see your personal income, savings, and investments, without it being tangled with business finances. The clarity of seeing your personal finances is important which allows you to carefully plan when making a huge investment such as a home, car, retirement plans, insurances, or your children’s education.
- Personal creditworthiness
Maintaining a healthy financial relationship between your business and personal finance helps you protect your personal creditworthiness. Mixing your business and personal finance can lead to difficulties in establishing and maintaining your personal credit profile. By separating the two, it helps you maintain personal creditworthiness, allowing you to easily apply for personal loans, mortgages, and credit cards.
- Diversify your portfolio
Being able to clearly see your personal financial profile can allow you to diversify your investment portfolio and wealth outside of your business interest. Separating your business and personal finance empowers you to focus on personal finance growth and opportunities which allows you to pursue other sources of income independently from your business.
- Easily track business cash flow
Separating your business and personal finance can help you track your business cash flow easily. By doing this, you’ll have a better understanding of your company’s financial health, analyze business income, business expenses, and profit margins without any of your personal finances clouding the overall financial statements of your business.
- Business tax compliance
A critical aspect of running a business is staying compliant with tax compliance. Separating your business and personal finance helps your business maintain an organized financial record. This can make it easier for you to track income tax or corporate tax. On the other hand, it can simplify the overall process of tax reporting and audits, allowing you to submit a clear and transparent report of your business financial activities.
- Financial transparency
Financial transparency is another reason why you should separate your business and personal finance. Financial transparency is an essential part of your business credibility. Having discrepancies on your financial statements can deem your business in a bad rep especially in business tax compliance. Without financial transparency, this can raise suspicion to your business and authorities might question the financial activities of your business.
- Future business growth
Allocating your business finance the right way can help you forecast your business growth. As we’ve mentioned multiple times earlier in the article, separating your business and personal finance can help you accurately track your business cash flow, which allows you to forecast possible opportunities for your business to leverage debt for the expansion and growth of your business, which discusses the next reason, business financing.
- Easily apply for Business financing
The advantage of keeping your business assets separate from your personal finances is the ability to get business financing. Business financing is a funding option for businesses to access loans to leverage for their business growth and expansion. With this, your business can lend money and re-invest it to further your business’ operation
3 Tips to Help You Separate Business and Personal Finance
- Create Separate Bank Accounts
The first and easiest way is to allocate your business finance to a business bank account and personal finance to a personal savings account. This can help you without having to over complicate your finances. Depositing or withdrawing at designated bank accounts can help you maintain a healthy relationship between your business and personal finances.
- Hire an Accountant
Hiring an accountant whether for personal or business can help you get time off your hands. Accounting is definitely a challenging job to do. Hiring a professional accountant can help you accurately measure and allocate both your business and personal finances accordingly. On the other hand, accountants can also assist you in calculating personal and business tax on your behalf, leaving you with less worries and stress.
- Apply for Business Financing
Rather than getting a personal loan for your business, you can apply for business financing. Business financing options are designed to support business expansions with financial resources. This can allow you to purchase business equipment, estates, inventory, hiring employees, or managing cash flow. Business financing is obtained by a business entity which limits the liability to the business itself. This protects your personal assets from liability unless personal guarantees or collaterals are involved.
If you’re looking for business financing options up to ₱20 Million, Shoppable Business can help you grow your business.
Shoppable Business is a B2B eCommerce Marketplace platform made for business-to-business transactions. You can buy and sell products online at wholesale, allowing your business to buy in bulk with quantity discounts. We are a B2B marketplace for businesses looking to procure their equipment, inventory, and stocks online, eliminating the tedious process of traditional procurement.
Why Become a Seller in Shoppable Business
- Access to a large customer base – giving businesses an opportunity to expand their reach and increase sales
- Increased visibility and brand awareness – a platform for businesses to showcase their products/services and potentially attract new customers
- BNPL (Buy now, Pay later) – grow your ASP; buyers/companies can apply for loans up to ₱150,000.00
Why Become a Buyer in Shoppable Business
- Wide product selection from different categories – a one-stop-shop solution for businesses’ procurement needs
- Save company time and money – Customized orders, RFQ for specific quantities, bundles, configuration, Track their orders, view purchase history
- Need it now but limited budget – Buy Now Pay Later – apply and get up to ₱150,000.00
Apply for a business financing option up to ₱20 Million with Shoppable Business and we will help your business grow in the B2B market!
