Being able to manage your finances is important. But from budgeting for unexpected costs and prioritizing cash on hand to filing taxes, your personal and business finances should always be handled separately.
For small business owners, it becomes even more important not to mix the two of them. You need to know which one you need more and when to use them.
Business Bookkeeping Vs Personal Bookkeeping
Business bookkeeping involves regular tracking of business revenue, expenses, debt and assets. This information is then turned into financial statements to help you make smarter financial decisions, secure your loans and file your tax returns. Simply stated, it helps you keep a record of all your business activity in one place. Hiring an online bookkeeper will let you do this more efficiently.
Personal bookkeeping helps you to keep track of your expenses and maintain a budget suited to your lifestyle. You can assess what you can afford, where you should invest and how you should save.
You will still require the help of a financial institution regarding your mortgage qualification. However, better understanding your personal expenses will make it easier to handle your monthly mortgage payments.
Importance of Small Business Bookkeeping
As a small business owner, it’s important to know where you’re spending your money and how much tax you’ll have to pay annually. Whether you qualify for a loan is also a matter of concern. To keep all the information in one place, you require some form of bookkeeping.
Speaking of loans, you may be able to apply for one or more of these nine popular Canadian micro loan programs for your small business. Their interest rates are generally lower than banks, and you don’t even need to show your collateral and assets.
However, with the ongoing coronavirus crisis, the big banks are allowing delayed mortgage payments and trying to work with personal and small business banking customers.
Let’s take a look at why bookkeeping is important for your business.
● Making Sure Every Payment Is Up to Date
Small business owners and startup entrepreneurs are always having to multitask, meaning some tasks may fall by the wayside. If that turns out to be bills being paid, it can create a problem. With the help of online bookkeeping and bookkeeping software, you can rest assured that you’ll never miss a payment again.
Producing Financial Statements to Investors
Financial statements give potential investors a glimpse into your business’s performance. They also help in making informed decisions since you know which areas of the company bring the best ROI.
When you seek financial help from an investor or bank, they’ll likely ask for financial statements dating back to the early days of your business. Without accurate bookkeeping, it’s impossible to organize that data.
Business and personal taxes are completely separate. Your tax requirements will vary depending on your business structure and the rules applicable to different industries. It can be overwhelming with changing tax rates, varying excise taxes, expired credits and deductions. And tax rules varying from province to province only adds to the confusion.
Focusing More on Growth
When you have to focus on product and marketing strategy, daily operational tasks become tedious. A bookkeeping service lets you focus on what’s really important. Furthermore, when you have detailed books for your business, your accountant can focus on lowering your taxes instead of spending time on sorting out financial messes.
Importance of Personal Bookkeeping
Personal financial management is about more than paying bills. Bookkeepers take responsibility for managing the livelihood of your business and personal finances. Documenting and recording your daily financial transactions is a necessary process for managing cash flow.
Personal bookkeeping helps you handle this task through:
- Prompt invoicing.
- General ledger maintenance.
- Financial report making, as per federal, provincial and local legislation.
- Documenting all expenses.
You probably maintain a budget for recurring expenses like rent, groceries and car payments. But what happens when unexpected expenses arise?
You may rely on credit cards or take out loans. But being debt-free is ideal when it comes to personal financing, and well-maintained bookkeeping prioritizes having cash on hand. Proper bookkeeping will also make filing personal tax much easier.
A Piece of Advice: Maintain Separate Accounts
Are you keen on managing both your personal and business finances? Then keep separate accounts to more easily track your money and make sure your business expenses don’t consume your personal funds.Having a line of credit specific to your business will help you keep track of your expenditures.
Personal and business bookkeeping, both are important but should be kept separate. If you think it is difficult for you to manage them, consider outsourcing your bookkeeping tasks to a reliable firm, so you can focus on productivity, sales and revenue.