I couldn’t resist quoting The Godfather when writing this post about keeping your personal expenditure separate from your Business expenditure. The rest of this post doesn’t quite live up to the excitement of this epic film but whilst it’s not exciting it is important.
When you first started your business you probably started as a sole trader and as a sole trader the money in the business is yours. You get taxed on the business profit and the Accountants calculate this profit by looking at, amongst other things, everything you have spent and adjusting this by adding back any personal expenditure.
When you “Go Limited” one danger is that you carry on with this perception that the money is yours and continue to mix personal and business expenditure. You shouldn’t do this because when you do incorporate you are separating the business legally from yourself. The money in the business is not yours and so it’s necessary to keep this money separate.
The main reason for the different treatment of personal cash for the different legal entities is tax, everything is a bit more relaxed for a sole trader but once you go limited then everything is more serious.
Treat it like a business from day one
My advice has nothing to do with the Tax treatment, although if you follow it you will be ahead of the game. My advice is to treat all cash as if it belongs to the business from day one. In fact you should try and separate yourself from the business from day one at least in your mind.
The most successful of my clients look at their businesses with a detached viewpoint, as something they want to create and build and to do that they view it as being separate from them from day one.
They see themselves as having a role in the business but know that they don’t want the business to rely on them going forward. They extend this to how they treat the money in the business – they treat the money as belonging to the business and only take what they need and either leave the rest in the business.
It goes without saying that have separate bank accounts and credit cards and do not use business money for personal items. This is not only good practice but also speaks volumes about their intention for the business.
At Accsys Accountants we make sure you not only get the best tax advice but we also look out for the business. If you want to see how we can help you then give me a call you never know it I may be able to make you an offer you can’t refuse.
