In so many ways – mixing business and your personal life can be a tricky line to walk, especially when it comes to your financial well-being. If you’re looking for advice on how to overhaul your finances – this advice will frequently top the list because it’s so important.

As a small business owner, it can be very tempting to keep your personal and business finances intermingled. It’s certainly easier, at least initially. Setting up accounts can take time. But it is absolutely critical that you keep your personal and business finances separate. Here’s 6 reasons why, followed by how you can make the switch.

1. Separate Accounts Allows For Clear Reporting

It would be nearly impossible to create year end financial reports without clear, separate financials. You cannot determine your business’s true income or loss if you don’t know if a cost was due to a business expense or a personal shopping trip. You will not know if there was employee theft or if your child was taking money out of the till for candy. You cannot figure out your true financial position without the isolation of business expenses.

2. Business Analysis is Impossible With Muddled Data

Without a clear separation of business income and expenses and personal payments, you won’t be able to even come close to a position of being able to analyze your business growth and trends. You will have no idea how much you actually spent on utilities or office supplies or business travel. You won’t be able to determine how much your company actually grew if you’re not sure how much you really made, due to using cash from the till for food, movie tickets, and more.

3. Ease of Acquiring Credit

Your personal credit score will be evaluated as you apply for business credit, but often will be easier to secure if your business is a separate entity.

4. Time!

After the initial time investment on the front end for setup, keeping personal and business finances separate will save you hours and hours of time. And time is money!

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5. Come Tax Time, You’ll be Happy

You are required to file taxes for your business as well as individual taxes. Based on the type and size of your business, your required tax payments will vary. But no matter if you’re paying estimated taxes quarterly or annually, it will be incredibly confusing to determine tax liability if your numbers are all jumbled together in one bank account.

Imagine being audited by the IRS and trying to piece together receipts, bills, and more for your business vs. personal. If they’re all jumbled together, you’d be in trouble – with double the work to dig yourself out.

6. Keep Personal and Business Separate for Legal Reasons

In addition to general peace of mind, you need to keep your personal finances separate from your business for legal reasons.

Having a separate business entity will protect your personal assets in the event of a lawsuit. This is a large reason why Limited Liability Companies (LLCs) exist.

Here's How to Fix It

With a new year upon us, now is the time to separate out personal and business accounts. If you don’t already have one, get a company credit card. Open a company bank account. Look into purchasing accounting software, or browse the many free versions online. And figure out how to get your transactions running through business accounts only. Get a business email if you don’t have one (not only will it help you keep business & personal separate, but it will be much more professional looking than a @gmail or @yahoo email address).

If you have a tax expert or accounting professional, ask their advice. Then start looking at your business’s financial reports. It will be tricky for a few years without any prior data to compare to, but you have to start somewhere. Start now!

Check Out Mint.com for Your Personal Finances

Mint.com is a popular tool for a variety of reasons. Not only does it allow you to link in any personal bank accounts, credit cards, loans, IRAs, cars, mortgages, and more, it lets you categorize each transaction for personal finance reporting, analysis, and budgeting. We couldn’t recommend it more.

Take our word for it. With your personal finances separate from your business finances, you will save time, have an easier time performing business analysis, and be in a position to think strategically about future growth.