Separating Business and Personal Finances
Whether you are just starting out your business or you have been at it on the side for a while, it is important to remember that your personal and business finances should be kept separate. While you may feel it is too early to register your business because you’re not sure how well it will perform, or you think it doesn’t matter as it is just a side-hustle, it is essential that your personal and business affairs do not mix.
Today we look at why and how personal and business finances should be separated.
- Promotes a professional business image
Providing your customers with business account details for payment instead of that of a personal account creates a more professional identity and provides your customers with a better sense of comfort as to the legitimacy of your business and the services/products you offer.
- Provides clear picture of business performance
It is harder to keep track of business income and expenditures when personal and business finances are co-mingled in the same account. Co-mingled funds create a blurred line which increases the likelihood that you may be overspending your personal income, as there is no immediate indication of how much business revenue is actually in your account.
Having a separate business account allows you to easily track and reconcile your business transactions, providing you with a clear picture of your business performance. Assessing your business profitability can be more stressful and time-consuming when you have to search through personal transactions to identify business income and expenditures. Furthermore, separate accounts also allow you to keep your personal transactions separate, reducing the risk of using business revenues for every day personal use.
- Facilitates budgeting and cash flow management
With a clear indication of your current revenues and expenditures, budgeting and cash flow management becomes easier. You know exactly what your expenses are and how much you expect to generate. Ensuring that personal expenses are not conducted through business revenues makes it easier to:
- assess whether you are on track with your budget and cash flow forecast,
- identify whether there are
If you would like to draw funds from the business account for personal use, it is better to do so through a payment which has been budgeted for!
- Provides Credit History for Financing facilities
Having a business bank account improves your credit score with your bank. They are able to review your transaction history when assessing your application for a credit facility, be it a credit card, an overdraft or a business loan.
Should your business transactions be conducted through your personal bank account, it may prove to be difficult to show the bank that your business is profitable and has the ability to repay any credit facilities provided.
- Easier to compute tax liabilities
Having your personal and business finances separate, facilitates tax computations by providing clear distinctions of what transactions were for business purposes. Should your business be subjected to a tax audit by the Seychelles Revenue Commission, separate accounts ensure that your personal transactions are kept out of the audit review.
- Removes personal liability
How to separate Personal and Business Finances
- Register your business!
It does not matter if you are just starting out, head to the Registrar at Independence House and get your business registered! Your business should be a separate legal entity, that is, have its own identity. You can choose to register as a Sole Proprietor, Partnership or Corporate entity
- Open a business bank account
Open an account with your preferred financial institution (see List of Commercial Banks and List of Non-Bank Deposit Institution). Things to consider when choosing which bank is best for you and your business are:
- Products and services offered by the Bank depending on products/services you will need for your business’ operation (Debit/credit cards, cheque books, internet banking, loan facilities)
- Minimum balance requirements for business accounts. The minimum balance requirements differs across banks
- Applicable bank charges – monthly maintenance fees, ledger fees, charges for breach of minimum balances, transfer fees, etc…
- Other factors include customer service levels, accessibility and efficiency
- Establish an Accounting system
Having a business account is the first to step to separating your personal affairs from that of your business. Now you need to establish a proper accounting system to keep track of your accounts payables and receivables and ensure you are in compliance with applicable laws in Seychelles.
If you have an accounting background, you can easily do this yourself, however, as a small business owner, your time should be spent focusing on revenue-generating aspects of your business. An accounting or bookkeeping firm can help you manage your monthly reconciliation and provide you with financial guidance. Other than Paperworks, the Seychelles Licensing Authority’s website provides the list of all licensed Accountants & Auditors in Seychelles.
Whether you take a DIY approach or establish a working relationship with an accounting firm, you must ensure that you have a proper accounting system in place to organize your finances.
Disclaimer – This post does not constitute legal or tax advice. For financial advice for your business, please do not hesitate to contact us on [email protected].