Keep Business and Personal Lives Apart

When it comes to owning a business, newbies often make the mistake of combining their business and personal affairs. As a business owner, it’s healthy to separate yourself from your business and treat your business as a separate entity.

A little investment of energy early on can bring huge dividends later in the life of your business. For example, set up a business bank account, rather than mixing your business and personal expenses – your accountant and bookkeeper will both be thankful. You will also enjoy the benefits: less confusion and lower accounting and bookkeeping costs, particularly when your friendly neighbourhood tax auditor comes knocking.

New owners have a tendency to dovetail their personal and business lives, usually in an effort to save a few dollars. I have done this in the past and it only leads to difficulty. Any savings quickly evaporated when it came to sorting out the mess later.

Think of your new business as a separate entity, like having a baby, building a house, or hatching an egg.

Here are some ways to separate your business from your personal life.

  1. Separate your personal time from your business time.
  2. Coach your customers to contact you during your business hours.
  3. Train your friends to contact you during personal hours.
  4. Consider yourself to be an employee of your business and pay yourself a wage.
  5. Open a business bank account, pay business expenses from that account and pay your personal expenses with your wages.
  6. Establish separate telephone and fax numbers for the business.
  7. Create a separate Internet and email presence for the business.
  8. If you’re home-based, create a separate space for the business and if possible, have a separate entrance for customers.
  9. Even if your business is a proprietorship for which the tax authorities view you and your business as the same entity, set-up your business with its own bookkeeping and accounting systems.

There are some great payoffs for separating your personal and business affairs. You will:

  • Know your personal and business expenses
  • Be more effective at calculating costs and setting prices
  • Find it easier to deal with auditors
  • Lower your bookkeeping and accounting costs
  • Be better prepared if you decide to sell the business or bring in a partner
  • Have more peace of mind

With much to gain and little to lose, I urge you to consider your business to be a separate entity from yourself.