How to Manage Business and Personal Finances 

October 30, 2023
minutes to read
Justin Bohlmann

For any small business owner, separating personal and business finances is not just a recommended practice but a fundamental cornerstone for sustainable business management. Merging the two can blur financial clarity, complicate tax compliance, and jeopardise the protective barriers that certain business structures offer against personal liabilities. By maintaining distinct financial realms, business owners safeguard their personal assets and foster transparency, professionalism, and trustworthiness in their business operations. In essence, this separation is pivotal in ensuring both the business's success and the personal financial security of the owner. 

Set up separate bank accounts for business and personal use 

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Using a personal bank account for business finances can affect your legal liability and have tax implications. A separate business account could help protect your personal assets in case of legal issues. This can depend on your business structure, and you should always get the appropriate advice from a qualified accountant. 

A separate business account allows you to manage your business in one central location, which can help with better recordkeeping and make tax time much faster and much easier. 

Different debit cards for personal and business use that are clearly identifiable will help you keep things in order. 

Put aside business profit first

We’re big fans of the Profit First method here at Thriday. When you put aside profit first you’re creating good, sustainable financial habits. Coupled with paying yourself first, you have no choice other than managing your operational expenses effectively. If you can’t afford it, then don’t spend it. This goes for personal and business finances. 

Always pay yourself  

Paying yourself first ensures you set aside money for your personal needs and future. This creates a safety net and reduces the stress of potential financial hardships. 

Regularly setting aside a portion of your business's income for yourself instils financial discipline. Over time, this becomes a habit, making managing your personal and business finances easier. 

Paying yourself before putting aside money for operational expenses helps draw a clear line between your personal and business finances. This is crucial for tax purposes, liability protection, and for getting a clear picture of your business's financial health. 

You may become more cautious about unnecessary business expenses when prioritising paying yourself. This can lead to a leaner operation and potentially higher profit margins. 

If your business cannot sustain itself after you pay yourself, it might indicate underlying issues with the business model. This practice forces you to confront and address these issues head-on. 

Save all your receipts and keep them separate. 

Mixing personal and business expenses can complicate tax filings. Keeping receipts separate can ensure that only legitimate business expenses are claimed as tax deductions, reducing the risk of audits or penalties. 

Separating receipts allows for a clearer understanding of the business's financial health. Tracking revenue, expenses, and profitability is easier when personal transactions aren't mixed in. 

When receipts are mixed, sorting through them during bookkeeping takes additional time and effort. This can lead to errors, missed deductions, or overlooked expenses. 

Accurate budgeting and financial forecasting rely on clear financial records. Mixing personal and business receipts can skew these projections, leading to misguided business decisions. 

In the event of an audit, having separate receipts ensures that you can quickly and confidently provide the necessary documentation to tax authorities. 

Understanding the inflow and outflow of business funds is crucial for managing cash flow. Mixed receipts can obscure the true cash position of the business. 

Just as it's essential to understand your business's finances, it's equally important to have a clear picture of your personal financial situation. Mixing receipts can blur this picture, making personal financial planning more challenging. 

Keeping business and personal receipts separate is not just a best practice—it's essential for accurate financial management, compliance, and the overall success and sustainability of the business. 

Create separate budgets for business and personal use 

Separate budgets provide a clear understanding of both your business's financial health and your personal financial situation. This clarity allows for better decision-making in both realms. 

A business budget helps monitor cash flow, improving your chances of remaining solvent and helping to ensure you can meet financial obligations. 

With a dedicated business budget, you can make more accurate financial projections, helping you plan for future growth, downturns, or other business scenarios. 

A personal budget ensures you live within your means, save for future goals, and prepare for emergencies. Mixing personal and business finances can jeopardise your personal financial well-being. 

Separate budgets allow for more informed decisions. For instance, understanding your business's financial position can guide investment, hiring, or expansion decisions. Similarly, a personal budget can inform decisions about major purchases, investments, or savings. 

Having a clear and separate business budget can expedite the process when seeking business loans or investors. Lenders and investors often require detailed financial records to assess the viability of your business. 

A business budget provides benchmarks and performance metrics, allowing you to gauge the success of your business strategies and make necessary adjustments. 

On the personal side, a budget helps you stay accountable to your financial goals, whether it's saving for a holiday, buying a home, or preparing for retirement. 

In essence, separate budgets for business and personal use provide the foundation for sound financial management, ensuring your business's sustainability and growth while safeguarding your financial health. 

Stay on top of both business and personal tax

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Don’t rob Peter to pay Paul, i.e. you shouldn’t be dipping into your personal savings to pay your BAS or tax for your business and vice versa. 

By being aware of upcoming personal and business tax liabilities, you can better manage your cash flow to ensure you have the necessary funds available when taxes are due. 

Late or incorrect tax filings can result in significant penalties and interest charges. You can avoid these unnecessary costs by staying on top of your tax obligations. 

Regularly monitoring your tax situation allows you to take advantage of all available deductions and credits, reducing your overall tax liability. 

Understanding your tax obligations provides a clearer picture of your actual income and profitability, both personally and for your business. 

Knowing you're up-to-date with your tax obligations eliminates the stress and uncertainty of potential tax issues. 

Tax laws can be complex. Regularly staying on top of them helps prevent costly mistakes arising from misunderstandings or oversights. 

Having clean and up-to-date tax records is often a prerequisite for business owners looking to secure loans, attract investors, or even sell their business. 

Staying on top of both business and personal taxes ensures compliance, financial health, and peace of mind. It's an essential aspect of responsible financial management for individuals and business owners. 

Using Thriday, our business tax obligations are calculated automatically, and any new tax rules are taken care of in the background. 

Keep your bookkeeping up to date

Thriday all-in-one financial management platform
Thriday all-in-one financial management platform

The last thing you want is a big bill that you weren’t expecting to pop up out of nowhere... 

Business bookkeeping plays a pivotal role in maintaining a company's financial health, and its effects can also ripple into the business owner's personal finances. Here's why business bookkeeping is important for both business and personal finances: 

Bookkeeping provides a clear picture of a business's financial health. This clarity helps business owners make informed decisions, which can also impact their personal financial situation. 

Accurate bookkeeping ensures that all transactions are recorded, making it easier to file accurate tax returns. This helps avoid business-related tax issues and could prevent potential personal tax liabilities for the business owner. 

Effective bookkeeping tracks the inflow and outflow of funds, helping businesses manage their liquidity. A stable business cash flow can translate to consistent personal income for the owner. 

With accurate financial records, businesses can create realistic budgets and forecasts. This aids in planning for future business growth, which can, in turn, lead to increased personal wealth for the owner. 

Lenders and investors often require detailed financial records before providing funding. Proper bookkeeping ensures these records are available and accurate, facilitating access to capital for business growth, which can enhance the owner's personal net worth. 

Bookkeeping provides data-driven insights, allowing business owners to make informed decisions. These decisions can impact the business's profitability and, consequently, the owner's income. 

Regular bookkeeping helps in identifying unnecessary expenses or areas of wastage. Reducing these costs can boost business profits and potentially increase the owner's take-home pay. 

For business owners, the success of their business often directly impacts their personal financial health. Accurate bookkeeping provides a realistic view of the business's financial state, enabling better personal financial planning. 

Proper bookkeeping can help identify financial risks or anomalies that might indicate fraud or theft. Addressing these issues can save the business money and protect the owner's investment. 

Business bookkeeping is not just a tool for managing business finances; it's a cornerstone of overall financial management that has significant implications for the personal financial well-being of business owners. 

Make sure your insurance is up to date for both your personal assets and your business. 

Make sure you have the right level of business and personal insurance

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Small businesses in Australia should consider several types of insurance to protect their assets, employees, and customers. Some types of insurance are compulsory by law, while others are optional but can help reduce business risk. Here are some types of insurance that small businesses in Australia should consider: 

Workers' compensation insurance: This type of insurance is compulsory for all businesses in Australia that employ workers. It provides financial protection to employees who suffer work-related injuries or illnesses. 

Public liability insurance: This covers the costs associated with legal action and damages if a business is found liable for injury or property damage to a third party. 

Personal or loss of income insurance: This type of insurance provides financial protection to business owners in case they are unable to work due to illness or injury. 

Stock, products, and asset insurance: This type of insurance covers the cost of replacing or repairing damaged or stolen business assets, such as equipment, premises, and stock. 

Cyber insurance: This type of insurance provides coverage against new risks resulting from the use of technology, such as data breaches and cyber attacks. 

Professional indemnity insurance: This type of insurance protects businesses that provide professional advice or services, such as lawyers, accountants, and consultants. 

Vehicle insurance: This type of insurance covers the cost of repairing or replacing business vehicles in case of accidents or theft. 

It's important to note that the types of insurance a business needs may vary depending on factors such as the business type, sector, industry, and size. Business owners should evaluate their needs and seek professional advice from licensed insurance brokers, business advisors, or insurers before choosing a business insurance policy. 

Small business owners in Australia should consider several types of personal insurance to protect themselves and their families. Here are some types of personal insurance that small business owners in Australia should consider: 

Personal or loss of income insurance: This type of insurance provides financial protection to business owners in case they are unable to work due to illness or injury. 

Life insurance: This type of insurance provides financial protection to the business owner's family in case of their death. 

Total and permanent disability (TPD) insurance: This type of insurance provides financial protection to the business owner if they become totally and permanently disabled and unable to work. 

Home and contents insurance: Home and contents insurance helps safeguard your investment, cover unexpected expenses, and provide peace of mind in unforeseen incidents. Any level of damage to your property could have a significant impact on you and your business. 

Vehicle insurance: The last thing you need is an expensive vehicle repair bill for the same reasons as mentioned above.  

It's important to note that the types of personal insurance a business owner needs may vary depending on factors such as their personal circumstances, financial situation, and business structure. Business owners should evaluate their needs and seek professional advice from licensed insurance brokers, financial advisors, or insurers before choosing a personal insurance policy. 

Keeping personal and business finances sperate isn't hard but it's super important.

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It's specifically designed to save you time and make your life easier.

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