“Well darkness has a hunger that’s insatiable. And lightness has a call that’s hard to hear.” -Indigo Girls
Let’s just put it out there- sometimes doing the right thing is hard. This happens frequently in business when owner’s are trying to determine what is a “business” expense and what’s not. Business and personal expenses should not mix in your books!
Here are some easy ways to keep you honest and clean:
Put your business on the map: you can make it a separate legal entity (LLC, SCorp, etc) and apply for an EIN. This will also make the business a separate legal entity and protect your personal assets.
Get a business bank account and credit card: this will force you to stop using personal accounts to pay for expenses. Maybe it was a hobby that turned into more. Find a defining moment to turn it into a business and cut off your personal funds as the checking account.
Pay yourself a salary: this is a MUST for a SCorp but LLCs can benefit as well. Even if you just take a draw you are behaving as if you worked for someone else. You will need to determine the amount to transfer while still having a cushion in the business account. I recommend reading “Profit First” if you never have!
Separate your receipts and keep them safe: you can save these digitally or physically. Writing notes on the receipts will also help. If you have coffee or lunch with a client you can record the name of the person you met with as additional backup. You can upload digital images of receipts into your bookkeeping software adding an extra layer of protection in case government entities ever come knocking. In the event you have personal expenses lumped with business transactions, make sure to split them out and record them as an owner draw on your books.
Educate your employees: it may seem like common sense to you but make sure anyone working for you has the same understanding of business vs personal expenses. If they have access to a company credit card you’ll want to review it regularly.
Sometimes it’s so much easier to give in to the dark but if you listen hard…you can hear the light.
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