๐๏ธSeparating Business and Personal Transactions
Separating business and personal transactions saves money and protects assets. CommerceNavigator tracks your business and personal expenses. Start for free now.
When starting out, many entrepreneurs merge their business and personal transactions.
But this could quickly become an accounting mess.
To avoid a jumble of numbers that don't make sense, CommerceNavigator software tracks all your expenses in real time and uses an AI-driven transaction categorization feature to separate business and personal transactions.
This keeps you on the good side with the IRS while you scale your company without worrying about numerical nightmares. Separating business and personal transactions can be tricky for most people because personal expenses often merge with business. This is especially true when itโs only a side hustle to provide extra cash, like many eCommerce businesses. So, how do you differentiate these two transactions?
What Is the Difference Between Business and Personal Transactions?
A business transaction happens when you pay or get paid for your goods and services.
For example, when you buy a product from a wholesaler for your dropshipping business and resell it on Amazon. Or when you buy knitting needles and yarns to create beautiful hand-knitted products to sell on Etsy. Sourcing the products you need and selling them afterward are all business transactions.
On the other hand, personal transactions include spending or receiving money for personal reasons. For example, when you finally buy that Xbox youโve been eyeing! Relief, right? Thatโs a personal transaction.
Ultimately, business transactions concern your business, while personal transactions pertain to you as an individual.
But if you own or control the business, why is separating business and personal finances necessary?
Letโs see.
Why Itโs Important to Separate Business and Personal Finances
It's rarely a good idea to blur the lines between business and pleasure. And the same applies to finances.
Itโs easy to merge finances when you think of your business as a side hustle. But regardless of the size, you should separate business and personal finances for these reasons:
Taxes
Itโs essential to record all business transactions to be eligible for tax deductions. Government audits can be random, and having documents that separate your personal and business expenses will help you.
This sounds stressful, doesnโt it? After all, if you run your business on the side or are just starting, you shouldnโt need a tax professional.
Fortunately, you can automate the process with CommerceNavigatorโs tax system. It uses your data to help you track profit or loss easily, maximize tax deductions and limit any tax liabilities while delivering an IRS Schedule C worksheet at the end of the year, making tax season a breeze.
Monitor Your Business Cash Flow
Separating business and personal finances offers a more precise overview of your business cash flow.
For example, itโll become challenging to know if your business is actually profitable or not when you donโt separate business and personal transactions.
It also becomes easier to plan for the future, while youโll also clearly understand how your business is performing at any given time.
As your business grows, the volume and complexities of transactions will grow, too. Separating business and personal transactions from the onset ensures more accurate numbers.
Maintain a Business Image
This may go without saying, but separating business and personal transactions gives you a professional image. It can help your business appear established and credible, especially when your business name appears on credit cards and invoices.
To Save Time and Money
Maintaining separate accounts will help you save time and reduce costs in the long run. Although you'll have to pay any bookkeeper you hire, having separate finances will reduce billable hours, saving both money and frustration.
A better alternative is AI-backed eCommerce bookkeeping software, which costs significantly less than hiring an accountant and reduces human errors, which can be detrimental to your business.
Enter CommerceNavigator
Managing separate accounts for your business and personal needs can take time and effort. But it doesn't have to be strenuous. CommerceNavigator's powerful bookkeeping keeps you in control of your personal and business finances with only one click! Click here to learn how it works.
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