Why it is important to separate business and personal finances

 

It is important to separate business and personal finances. It helps with:

 

  • Monitoring how the business is performing

As an entrepreneur, it is important to record income and expenditure. The income and expenditure account helps one to find out the surplus or deficit, it is similar to the profit and loss account. Also, a cash inflow and outflow account is a simpler way of showing if the business is making money or not.

 

  •  Avoid thumb dipping in the till

When it comes to owning a business, one has to be disciplined. If one keeps on removing money from the business it can go bankrupt. Self discipline can help the business become more lucrative in the long run. If one withdraws money from the business, they must make sure it is accounted for. If they rely on the business to cover personal expenses, it may be better to take a monthly salary instead, which must be recorded in order to help minimize constant withdrawals.

 

  • The mindset of professionalism

When creating a business there must be clear lines between personal and business issues. It helps with setting lines so to avoid overspending and also help the business expand.

 

  • Accounting finances to the tax officials

When a business is registered in a country, especially in Zimbabwe, it has to go under tax clearance every year. Therefore, the financial records have to be up-to-date. When accounting finances to tax officials, they check how much is the business losing a year and to what.