When I worked as a business consultant, I often came across small business owners that had issues with keeping their business expenses separate from personal expenses. There are simple steps that you can take to ensure that this does not happen to you. By following these steps, you should never have to worry about which is which.
You should have a binder, folder, or book in which you place all of your business receipts. Put them in as soon as you can and do not let them simply sit in your wallet to eventually be tossed out. If the receipt does not clearly state what the purchase was for, write an explanation on the back of it so that you remember.
I always suggest that small business owners have two checking accounts. One should be for business expenses and one should be for personal ones. This is one of the first steps to ensuring that your expenses do not get confused.
Never write a check for a personal expense using your business account, or vice versa. This is one of the easiest ways to confuse your accounts and can lead to a headache if you get audited. If need be, carry both checkbooks with you.
Make sure that you have separate charge cards for your business and personal expenses. Never use one card for the other reason. The less figuring out that you have to do later the better off you are.
If you can avoid using cash for a business expense, do it. Cash transactions often get confused with personal expenses and can be questioned during an audit. Make sure that you never give an auditor anything to question.
If you need to carry some business cash with you, do not keep it in the same place as your personal money. Keep it in an envelope or in a separate pocket to ensure that you do not confuse the two. I once had a client spend two hours trying to remember purchases so that he could separate the money correctly.
If your cash drawer or your petty cash envelope are getting sparse, do not take money out of your own pocket. Send someone to the bank immediately. Do not write a little note as to how much you put it because notes often get lost.
We have all been at a business supply store and seen something that we want for ourselves. If you are going to purchase something for yourself, make sure that you have the item rung up on another ticket. I have seen auditors question items that have been crossed off of receipts.
You need to ensure that you know the business meal expenditure tax laws. One of the common mistakes that I have seen during audits is that small business owners are unsure when lunches can be written off. They either end up trying to write off everything, or nothing.
When on a business trip, make sure that you charge as much to your room as possible. Remember that one receipt is much easier to keep track of than multiples. Very few hotels charge a service fee for placing something on your room bill anymore so take advantage of it.
By following these steps, you would be hard-pressed to confuse your business expenses and personal expenses ever again. I admit that I had issues with this when I first started out. I learned the rules to ensure that they stay separated. While it may take a moment or two extra, it ultimately saved me time, money, and worry in the long run.
Read more by L. Vincent Poupard.
- The North Star to Guide Your Startup: Core Values Entrepreneur