Balance Personal and Business Finance for Canadian Small Businesses
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Difference Between Personal And Business FinanceBoth personal and commercial financial planning have the same elements: budgeting, taxes, investments, and strategic objectives. However, there are a lot more things that make them different. If you are someone just getting along with a new startup, here are the differences you need to know:
- Simplicity and complexity: Business finance is a lot more complex. Finance in business requires accounting, risk management, forecasting, and departmental budgets among other things.
- Taxes: Filing income taxes is primary in personal taxes. In small business though, one must adhere to relevant local, state, and federal laws and regulations. They have to take care of income tax, Employment tax, Excise tax and more.
- Managing Several Streams of Income: Having many streams of income is beneficial both on a personal level and for a business. Administration and monitoring it on a personal level isn’t complex. However, when doing it for a business, they have to keep track of their finances and organize their fiscal plans around different revenue streams, including investments, rent, subscriptions, and passive income.
- Investments: In personal finance, investments are meant for a secure future or acquiring an asset. In business though, it means growing the business and increasing profitability. The use of leverage and shorter time horizons for business investments is another major difference.
Common Mistakes to Avoid When Balancing Personal and Business FinancesIncome volatility, limited access to capital, and lack of financial literacy can make business owners commit certain mistakes that make their financial situation from bad to worse. So, for small business owners in Canada, the struggle to balance personal and business finances is real. We’ve compiled a checklist of common mistakes that you can handy when you sit down and assess your business:
- Not keeping separate financial accounts: ALWAYS keep separate bank accounts and credit cards for your business and personal finances. With this, you’ll track spending and income easily, while also protecting your personal assets against business lawsuits.
- Using business funds for personal expenses: Despite all the temptations, don’t use business funds for personal expenses, as it will blur the lines between your personal and business finances, leading to more financial problems down the road.
- Not paying yourself a salary: Are you a sole proprietor? If yes, then pay yourself a salary to track your income and expenses. Also, it will ensure that you're being paid fairly for your work.
- Having No Budget: How would you manage your personal and business finances when you don’t have a budget? So, by creating a budget, you can track your income and expenses and make sure that you're not overspending.
- Not Saving For Taxes: Self-employed Canadians are mandated to pay quarterly income tax installments. People often don’t set aside money each month to cover their tax payments. Start doing it!