9 Tips for Separating Business and Personal Finances

Separating your personal and business finances will help keep your business expenses organized. Incorporating your business, opening business bank accounts, and applying for business credit cards can help protect your personal assets and make bookkeeping much easier. We compiled nine best practices that can help you run your business successfully and track its overall financial health.

1. Get an Employer Identification Number

Separating personal and business finances is a crucial step in managing your business finances. This process often starts with protecting your personal assets by getting an employer identification number (EIN). Use this nine-digit number to apply for business-related accounts instead of your Social Security number (SSN).

While using your Social Security number for personal accounts is common, using an EIN ensures your business accounts are associated with your business information. You can apply for and receive an EIN online through the IRS’s website.

2. Incorporate Your Business

Incorporating your business is one of the best ways to separate business and personal finances. Registering your business as a limited liability corporation (LLC), C corporation (C-corp), or S corporation (S-corp) can protect your personal assets. As a business owner of an incorporated business, you typically won’t be held personally liable for business debts and legal judgments.

However, as a sole proprietor, you are held personally responsible for any business debts or monies owed because the business is linked to your Social Security number. You can set up an LLC by registering with your secretary of state office. Processing times may vary from state to state, but it usually takes seven to 10 business days to process.

3. Open a Business Checking Account

Business owners who make the mistake of using personal accounts to manage business funds may have a harder time with taxes and bookkeeping. Business checking accounts are tailored to business owners and come with valuable business features. Opening a business checking account that fits your business needs will help you separate personal and business finances efficiently.

Here are two of the best small business checking accounts you can open.

Chase Bank: Best for Free Checking & Low Monthly Deposits

Chase is a traditional bank that offers a variety of business products and multiple branch locations for businesses that process cash payments. Chances are you’ll be able to find a Chase location near you, wherever you’re located in the United States. Plus, having a business checking account to process client payments, send invoices, and make business deposits will keep your business and personal finances separate.

Azlo: Best for a Fee-free Online Checking Account

Small businesses that don’t process cash may prefer an online-only bank like Azlo, which offers a fee-free account and easy app integrations. You can conduct your business easily using mobile and online banking to manage business transactions. Azlo has a great digital platform, so if you’re comfortable with digital banking, Azlo is one of the best options.

4. Set Up a Business Savings Account

Business owners shouldn’t mix personal savings deposits with business savings, so it’s a good idea to open a business savings account along with your business checking account. A business savings account offers a safe way to save for future business expenses and tuck money away for emergencies. Plus, you can access high-yield interest rates that earn up to 10 times the national average.

Here are two of the best small business savings accounts you can open.

First Internet Bank Business Savings: Best for Balances Over $250,000

First Internet Bank offers one of the best business savings accounts and, for business owners with balances above $250,000, you’ll earn this account’s best rate. Although it’s an internet bank, this savings account offers ATM access and the ability to make cash deposits. Open this account to earn high-interest rates with an easy way to avoid monthly account fees.

Capital One Business Savings: Best for High-yield Introductory APY

Capital One gets high marks for its customer service and easy online and mobile banking tools. Plus, this business savings account offers its highest APY for the first year after account opening. With this savings account, you can avoid using personal funds for business emergencies. However, this account is only available for owners located in Connecticut, Delaware, District of Columbia, Louisiana, Maryland, New Jersey, New York, Texas, and Virginia.

5. Apply for a Business Credit Card

Opening a business credit card is a good way to build business credit and separate business and personal finances. Business credit cards allow company owners to track business purchases made by their employees. They also come with additional business-friendly perks and generally offer higher credit limits than personal credit cards.

Here are two of the best small business credit cards you can open.

Chase Ink Business Cash ^SM: Best for Earning 5% Cash Back on Office-related Expenses

Business credit cards work in your favor because they give you an opportunity to earn rewards. Chase Ink Business Cash^SM is a top-ranking credit card for business owners because it offers excellent cash back rewards on common office expenses. Use this card to make everyday business purchases like office supplies and internet, cable and phone services. You can also issue employee cards for free and get access to additional card benefits, including purchase protection.

American Express Business Platinum Card®: Best for Top Travel Benefits and Avoiding Interest

Applying for an American Express Business Platinum Card® is another great way to separate business expenses and earn rewards that you can use for travel expenses. Because this card has no preset spending limit, business owners won’t need to worry about paying for large purchases. However, the balance will need to be paid off in full each month. Although it has a large annual fee, it’s one of the best travel credit cards for business expenses available.

6. Track Your Expenses

Keeping good financial records is important when your goal is to separate business and personal finances. Use your business credit card to pay for a business meal and use your personal credit card for personal items. It’s a good practice to keep your business receipts separate from your personal receipts. Businesses should save business receipts in case of an IRS audit.

An easy way to keep up with your receipts is to create a computer file for your business credit card. You can then scan and upload your business credit card receipts to the predesignated file and keep a digital copy. This gives you an easy way to organize your receipts with the statement date and keep a digital copy as a backup in case you lose your paper receipt.

7. Monitor Business Use of Personal Items

If your business involves items you normally use for personal reasons, including your home office or car, you’ll need to track usage carefully. Document how often you use your home office and whenever your personal car serves as a business vehicle. Business use of personal items like a home office, internet services, and even car travel expenses can be tax-deductible.

8. Put Yourself on Payroll

While you’re issuing employee checks, don’t forget to pay yourself as well. Paying yourself can help you avoid dipping into your business account to pay for personal expenses. You can write a check or set an automatic transfer from your business account to your personal account easily. By including your personal account in payroll, you can better separate your personal funds from your business funds.

9. Educate Business Employees and Partners

One of the best ways to separate your business and personal finances is to educate your employees and business partners. Create a business policy that clearly defines how to process and report business expenses properly to help reduce mistakes. This policy can also address how to process business payments properly and correct accidental purchases. Proper company education keeps you and everyone else at your business on the same page.

The Importance of Separating Business and Personal Finances

When you separate business and personal finances, it’s a lot easier to track expenses and keep your business more organized. However, it’s important to have your business activities separate, not just for bookkeeping purposes, but also for peace of mind. As your business grows, so should the need for clear records and organization. Setting up business bank accounts and business credit cards to keep your finances in order will help maintain healthy personal and business boundaries.

Bottom Line

Separating business and personal finances is a vital part of any business. Whether you’re a startup, sole proprietorship, or a growing, midsize business, the success of your business will be linked to how well you can monitor your business finances. Good business practices will keep your business and personal life working well and in harmony.