The Importance Of Separating Business And Personal Expenses

The Importance of Separating Business and Personal Expenses

Hey there, welcome! I hope you are doing well. Today, we are going to talk about money, specifically how you spend it. There are many important reasons as to why as a business owner, you need to split your well spent/made money into two categories; business expenses and personal expenses.

What’s the Difference

Business expenses are defined as anything you purchase to enhance the productivity of your business. Personal expenses is the money you spend to live your day to day life. These two distinct groups have different needs, dedication and organization. However, if your focus is to grow your business, here are a few important reasons to keep the two separate. 

The Importance Of Separating Business And Personal Expenses

Time. Who’s got it?

There are only 24 hours in an entire day; 8 of those in which you are supposed to “sleep”. Limited time means making quick thorough decisions, and separating your business and personal expenses is not something you want to do during prime business hours, personal time, or during those 8 hours of sleep.

The solution? Accurate record keeping. Separating your business expenses from your personal expenses allows you to prepare your books for tax time. It also avoids extra billable hours to your accountant. If you need assistance with separating your finances, communicate with your accountant or bookkeeper. Having them separate your expenses from the beginning prevents that extra work load, and more money to be spent. By trusting your accountant with your books, that leaves you with more time to focus on your business’ performance. 

Organizing Expenses

When owning a small to medium sized business, you want it to be successful. Growth, productivity, more clients/customers, etc. are all goals aligned with owning a company. When you organize your business and personal expenses into distinguished groups, you are able to focus on the areas that need to be curbed to prep for tax season.

It can also assist with determining inventory when products are limited or when deciding which products are most profitable. When taking the time to focus on your business and.bettering the performance of the establishment, you can pinpoint areas that need improvement, and which areas are most valuable. If your business is progressing and growing, then its reputation becomes astounding. 


A bad Yelp or Google review can be a killer, and can sway potential clients and customers to take their business elsewhere. Professionalism is key to running a business, Organization, time management, dedication etc. are all important factors for a business to thrive. So, when you separate your expenses, the chances of others gaining confidence in your companies professionalism sky rockets.

For example, if you write a check to someone and it comes from you personally and not your company, that person may not take your business as seriously as you would like. Having a great reputation can lead to better credit, opening bank accounts, and applying for grants much easier.

Establishing Credit

Establishing credit is always important for personal and business expenses, but the two cannot align together. One day you may need a business credit card or loan for your daily expenditures, and per usual there are requirements that need to be met. If you keep your business and personal expenses separate, applying for credit cards and loans goes a lot smoother. Creditors will take notice of an organized person whose business is thriving because their purchases are not running together. By having good credit and a profitable business, this can prep you for tax season. 

Tax Season

The season of taxing, what a joy. Now, many have this idea that tax season is STRESSFUL. And if you are unorganized, have a low business credit score, and a low profitability, it can be. However, there are benefits to separating your business expenses and your personal expenses for tax season.

For one, while you may deduct business expenses on your tax return, these deductions do not apply for to your personal expenses. Second, if personal expenses are included in these deductions, flags could be raised to the IRS and extra fines/penalties may need to be paid. That means, it takes longer for your taxes to be done, which means more money, and your business’ reputation suffers. 

Final Thoughts

Overall, running a business is not easy, if it were everyone would do it. Nevertheless, to have a successfully ran business, separating your expenses between personal and business saves you time, saves you money, builds your professional reputation, improves your credit and loan applicability, and helps your tax returns to be ran smoothly. The benefits outweigh the risk. So, if you do anything productive today, contact your accountant or bookkeeper and separate those expenses.