Updated: Dec 12, 2019
One flawed belief that most e-commerce entrepreneurs tend to hold true to this day is that a high amount of capital entails success and a smaller number entails going broke or never achieving more than the bare minimum.
Regardless of how much money you have to start and run your e-commerce business, what you actually do with it is vital to achieving success no matter what industry you’re operating in. For small-business finances, in particular, the exact “proper money management” approach is vital for attaining success. That makes it essential to control how you spend and make money. Handling the finances of your business as best as possible will make it much easier to ensure that the company grows and survives in the face of various conditions and challenges.
Out of all the different finance skills you can pick up as a small e-commerce business owner, there’s no attribute more important than the ability to separate your personal and business finances.
What’s with the separation?
You may have heard this in a business class or forum before, but separating your personal and business finances is an essential skill that most e-commerce business owners miss. When you fail to separate your personal finances from that of your business, you’re putting the financial well-being of your hard work at stake. Fortunately, separating your personal and business finances is one of the easiest financial skills you can apply immediately.
The benefits of separating
By keeping your personal finances separate from your business finances, it will be much easier to set your business up for immediate and sustainable growth. Other benefits include:
The simplification of your business’s general accounting process
A higher level of protection for your personal property
Lower rates of tax errors and costs of taxation
Ease of tax deduction calculation and overall preparation
Making the simple move of allotting a separate bank account for your own company can go a long way, especially if you frequently move numbers in and out of your account every day. The separation of personal and business-related financial matters will also help instil a certain sense of accountability and organization, which makes it easier to tell whether Friday’s lunch was with a client or friend.
In regard to accounting, separating your business finances from your personal expenses can prove especially valuable come tax season. Tax season, whether you believe it or not, greatly affects every e-commerce business, especially if it fails to declare the right numbers due to an invoice mixup. With the e-commerce industry gaining popularity and establishing its presence as a modern business field, more government accounting agencies are cracking down on inaccurate accounting, which just goes to show how important it is to get everything in order.
How can you separate your personal and business finances effectively?
Properly running a business’s finances and separating personal and business finances is a whole lot easier in today’s modern landscape. Let’s go over a few tips that you can take to separate your personal and business finances easily:
1. Choose the right bank
With dozens of different banks in a single area alone, it can be quite difficult to settle on a particular option, especially when promises of “no transaction fees” and “low payments” are brought up. When choosing for an e-commerce business, however, the best type of bank to go with should be an option that has the best online banking experience possible.
As a form of business that functions right on the internet, e-commerce entails having a bank that can be accessed easily online when conducting transactions or paying off bills. Generally, banks that are best for e-commerce businesses will come with online banking experiences that are tailored for your company.
2. Learn to label every transaction
Although this may seem simple enough, learning how to label each and every one of your transactions can help with classifying between a personal or business expense and invoice. Simply writing “personal “ or “business” on the invoice slip itself before storing it can help tremendously with ensuring that everything’s organized when closing up the books and filing taxes.
The ability to separate personal from business finances is an essential skill that every small e-commerce business owner should pick up right away. By ensuring the separation of each expense incurred during operations, your business will be able to gain the foundation it needs to ensure that everything is in order, and it will be conducive for growth.
If you are looking for an e-commerce accountant to help you manage your business’s finances, get in touch with us to see how we can help.