Personal Finance
The most common and costliest mistake small businesses make. Separating your business money from yours gives you the most clarity — and it's one of the easiest fixes.
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Create a free accountAsk any accountant what the most common and most expensive mistake small businesses make is, and almost all of them will tell you the same thing: mixing business money with personal money. Paying for groceries with the business card, getting paid by a client into your everyday account, taking "a little" out of the till for a household expense. It seems harmless. It is not.
Separating the two is probably the decision that will give you the most clarity about your business — and one of the easiest to put in place. Here is the why and the how.
If business revenue and your personal expenses live in the same account, the balance tells you nothing. You can have money in the bank and be losing money in the business, or the other way around. The number that really matters — is this profitable? — gets buried under the mix.
Every mixed transaction is one that someone (you or your accountant) will have to untangle later: was this a business expense or yours? Multiply that by hundreds of transactions and you get hours lost and deductions that slip through the cracks.
Can you hire? Can you get through a slow month? Can you afford to reinvest? Without separating, you answer on gut feeling. With separate accounts, you answer with a number.
The most important physical step. Everything business-related goes in and out of there; everything personal goes through your personal account. You don't need to form a company or deal with complicated paperwork to get started: all it takes is discipline about which account each thing goes to.
Instead of pulling money out of the business whenever you need it, set yourself a salary and transfer it to your personal account on a fixed date, like any other employee. That way the business "sees" what it costs to support you, and you stop confusing the business's cash with your own pocket.
When you take money out for yourself (a draw) or put your own money into the business (a contribution), record it as what it is. These are not business revenue or expenses: they are movements between you and the company. Keeping them clear prevents your profit from looking inflated or depressed for no real reason.
Even if you use a single account at first, you can start today by tagging every expense and every payment you receive as business or personal. That one distinction already lets you see two separate pictures: how the company is doing and how you are doing.
This separation is at the heart of the product. Every transaction is tagged as business or personal (business is the default; you say "personal expense:" or "switch to personal" when needed), owner draws and contributions have their own category, and you can view your business and your personal finances separately or see your combined net worth. You explore the personal side in personal finances.
Tag every transaction as business or personal and see each picture on its own — or your combined net worth. 7 days free, no card required.
Separating your business finances from your own is not a big-company luxury: it is what finally lets you know whether your business is making money and how much you can pay yourself. A separate account, a fixed salary, draws and contributions recorded, and every transaction tagged. It is a small effort for a huge amount of clarity.
To get your personal side in order once it is separated, start with how to control your personal expenses.