For small business owners the line between business and personal expenses sometimes get blurred, but it is never a good idea to comingle these when starting or growing your business. Differentiating between these plays a significant role in how your business operates, provides tax advantages, and provides protection for personal assets.

For tax purposes, maintaining business finances as a separate entity has the benefit of available tax deductions, including writing off business expenses. When your finances are merged, it increases your chances of the IRS auditing both your business and personal expenses. Keeping accurate and up-to-date books of separate business expenditures saves time and stress if an audit takes place.

Another important reason to keep business and personal finances separate is business credit. Working capital is vital to growing a business. Blended personal and business income makes it difficult to show business income to lenders and difficult to establish business credit. This can mean a business owners’ personal credit will be assessed to determine whether or not to extend credit. A personal guarantee means any debt incurred is the responsibility of the owner, not the business if it defaults.

Tax purposes and business credit are reasons enough to separate finances, and saving time and money are a part of each of those. Outsourcing finance and accounting functions is more economical for small businesses. Purchasing business accounting software and training an in-house staff, manually tracking transactions, reconciling monthly, and making certain all tax advantages are utilized aren’t things business owners have time to do consistently. Having a complete separation of personal and business finances by hiring a team of experts with no-surprises, predictable billing and support is a way to minimize risk and ensure IRS compliance.