How To Effectively Separate Personal And Business Expenses
Many people would say that the two main problems small business owners usually face are lack of funds as well as of time. Often, these business owners use their personal funds to go about their daily business activities, thereby creating issues when it comes to analysing loss and profit. Not only can this disincentivise revenue, but it can also affect taxable income.
As a business owner, it is essential for you to keep track of your finances, so you can better understand your business’s financial state and reduce unwanted expenses. Keeping track of your expenses can essentially help you allocate your funds more wisely. If you are a budding entrepreneur aiming to save every dollar you earn, this article is especially for you! Here are four practical tips for separating your personal and business expenses;
1. Have separate bank accounts
The first and most crucial step to separating your personal expenses from that of your business is to have separate bank accounts for them. This means that you should open a new bank account for the sole purpose of completing business transactions and keeping track of your business expenses.
Doing so will make it much easier for you to stick to the budget you have allocated for the entire financial year. Moreover, having separate bank accounts will help ensure that your personal expenses are under control.
2. Categorise transactions
Every time you make a business transaction from a personal account, it is highly advised that you have it noted and mentioned in your accounts and books. This way, you can take the transaction into account when analysing expenses and reporting taxes. Furthermore, you can also withdraw personal expenses from your business account in order to make an adjustment in your entries.
3. Hire bookkeeping and accounting services
Recording all transactions of your business to appropriate accounts and books is vital, as it allows you to analyse your expenses accurately and keep track of all the funds you utilised. This is also incredibly beneficial when filing and reporting correct taxes to the Inland Revenue Authority of Singapore (IRAS).
However, keep in mind that if you file personal taxes along with entries of business transactions, the IRAS may impose additional penalties, which can prejudice your business. To avoid these kinds of penalties, you should consider hiring reliable bookkeeping and accounting services that will help monitor the financial aspect of your business and ensure its statutory compliance.
4. Put in place an accounting system
To separate your personal and business expenses as well as analyse your financial reports faster, you might need to consider implementing and integrating the latest accounting technology into your business. This technology will help you automate your bookkeeping and accounting tasks for quicker and more accurate outputs. In addition, you can automate various other tasks, such as transaction recording and payroll management.
All in all, separating your personal account from your business helps you minimise taxable income and protect your liabilities, especially during an IRAS review. If you are in need of efficient and trusted accounting services in Singapore to meet your business’s financial requirements, OneStop Professional Services is the provider you can count on! We are a seasoned audit and accounting firm in Singapore that offers dependable and comprehensive accounting services, along with various other reliable corporate services, such as internal auditing and corporate financing. Give us a call today to learn more about our offers!