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FINANCIAL MANAGEMENT: WHY SEPARATE PERSONAL AND BUSINESS ACCOUNTS?

why separate personal and business accountswhy separate personal and business accounts

Why separate personal and business account? Mixing business expenses with personal accounts are common for some business owners, mainly due to the lack of time to manage them separately. However, this is a mistake that impairs the correct financial management of the company and can lead to problems such as losses and debts, as well as making it difficult to track business goals and results. Want to better understand why it’s important to organize accounts separately and how to make this separation? Keep up the reading!

What are the advantages of separate personal and business accounts?

Separating personal and business accounts is an important measure for good corporate financial management as it allows for greater control over the financial health of the business. This management has several advantages, such as easier tracking of revenues and expenses and making better investments. See which ones are the main ones!

Observe income and expenses separately

When personal and business accounts are mixed, it is not possible to view business income and expenses separately. This makes it difficult to control cash flow and prevents proper tracking of company profits and losses, especially when business resources are used to pay personal bills or vice versa.

By looking at the accounts separately, you can better visualize the actual profits of the business and take the necessary actions to optimize the results of each sector. Thus, financial losses are avoided and profitability increased.

Calculate ROI more properly

The Return on Investment (ROI or, English Return On Investment) is a metric of great importance for the company, as it allows understanding of the efforts are really paying off or not. Its calculation involves several factors because it is necessary to know the total profit generated by the investment – which can only be known through good financial management.

By having business accounts separate from personal accounts, this task is made easier as all the information to be considered in the calculation is properly organized and ready to use.

Understand where to invest resources

The calculation of ROI also allows us to know how to make better investments since it is possible to differentiate the actions that are giving better results and which are not bringing the expected return. In addition, it is possible to know which sectors of the company need interventions and to direct resources to those areas where they are most needed or most likely to profit.

How to make this separation?

There is a couple of ways to make this process simpler and to better separate accounts. See the main ones below.

Have separate accounts

Creating a unique bank account for the company’s financial movements is an essential step in separating expenses. This optimizes cash control as it makes it easier to see payables and receivables. Another advantage is the larger document organization, which helps keep the business up to date with its tax obligations.

Create a fixed salary

A common mistake that needs to be avoided is not controlling the company’s withdrawal of funds – since if all profit is used for personal purposes, the financial health of the business can reach a critical state.

Therefore, it is important to establish a fixed salary that will meet your personal and family needs adequately, but without compromising the growth of the company. In this way, the entrepreneur withdraws only the amount of money required monthly and can reinvest the remainder in the company itself.

As you can see, the separation of personal and business accounts optimizes the financial management of the business, helps prevent losses and even bankruptcy. It is therefore important to take steps to keep your business accounts organized and, if necessary, to seek professional help.

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