You've heard that business records and personal records should be kept separate, but do you know why it’s so important? Listen to this episode to help you stay out of hot water. To listen to
You’ve heard that business records and personal records should be kept separate, but do you know why it’s so important? Listen to this episode to help you stay out of hot water.
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I’m sure many of you have heard the piece of advice recommending that you should keep your business records separate from your personal records. But do you know why it’s so important?
Today we are going to talk about an important subject that is part of the Practices element of the 5 P’s. Practices are what Lisa describes as business activities that are the most effective course of action for running a healthy successful business.
This particular topic is true for small and large businesses. However, it is usually found to be a problem more often in smaller businesses. This best business practice of keeping separate business and personal records is the topic of our show today.
*There are 5 key reasons that it is important to keep business records separate from personal records – they are Legal, Liability, Tax, Professionalism and Sanity
*Legal designation – Sole Proprietor, LLC and Corporation – have a certain meaning and one of those defines the liability and obligation aspect of running a particular type of entity.
*The protections that are afforded a company under certain designations can be challenged if certain obligations are not met and expose entrepreneurs to personal liability.
*From a Tax standpoint, comingling business and personal transactions can be a red flag for taxing authorities especially in an audit.
*Evidence of comingling can also raise a red flag and create the risk that your personal returns could also be put under an audit. This can be costly.
*Lisa also talks about how maintaining clean business records and providing customers with the traditional business records (such as invoices and receipts) not only lends to the professional look and feel but also answers some tax requirements as well.
*Lisa explains how keeping your business and personal separate helps busy entrepreneurs create that demarcation point between the two. She explains how comingling the business and personal creates unnecessary work and takes additional valuable time.
*Some tips are offered about what things you need to do to make sure that the business and personal records are maintained separately. Lisa also discusses what she means by transaction point and how that can help you keep the various records clean.
*Lisa also talks about those types of assets that sometimes can be used for both personal and business and how you need to make sure that you are clearly documenting and tracking each.
*We also discuss the idea of adopting good habits and processes to manage your recordkeeping and keep records clean and organized.
*Lisa discusses who can help the entrepreneur fix issues in this area and who can help create processes and system to help manage and maintain your records over time.
Resources and Links
Entrepreneur’s Checklist: Keeping Business and Personal Records Separate – this link will take you first to a sign-up form, once you confirm your subscription, you’ll get a link to the checklist.
Note: Links in this post may be affiliate links. Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.
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Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track. You can find out more about her here