SEPARATE PERSONAL AND BUSINESS FINANCES
One of the main advantages of forming an LLC is protection against personal liability in the event that your business is sued.
However, intermingling your business and personal finances puts you at risk of losing this critical protection. This guide outlines simple steps you can take to separate your business and personal finances and avoid risk of personal liability.
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STEP 1: SET UP BUSINESS BANKING
The first step toward separating business and personal finances is setting up a dedicated business bank account and credit card. This way, the business can engage in transactions independent of its owners. Note that many banks require you to have an EIN before setting up an account.
Your business accounts should only be used for business related transactions. Using your business accounts for personal expenditures can expose you to personal liability for the debts of your business. Mistakes do happen; we recommend keeping a close eye on your accounts to ensure that separation is maintained.
STEP 2: SET UP BUSINESS ACCOUNTING
An effective business accounting system helps you document that you have properly separated business and personal finances. In addition, an accounting system will help you create financial reports, track the performance of your business, and simplify tax filings.
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STEP 3: DOCUMENT BUSINESS DECISIONS
Proper documentation of key business decisions…
- Make sure all business transactions are signed in the name of the company. All individual signers should indicate their role within the company, and that they are signing on its behalf to avoid personal liability. Learn more about proper signature etiquette.
- Record meetings with professional minutes, and document decisions in signed resolutions. These records help establish the company as its own body with decision making power.