Wednesday, 23 Nov 2022
An entrepreneur who gives his blood and sweat to build a business is often loaded with many responsibilities. They become emotionally and personally involved in the establishment and growth of the venture. Since they do not consider the company a detached entity, they forget to separate their finances.
They use their own bank account and credit card to make business transactions in Melbourne, leading to confusion. With personal and business expenses all mixed up, it becomes challenging to file taxes, understand the incomings and outgoings and organise the books.
Consequently, the business owner can either drain his savings in the process or take out too much from the profits generated by the company in Melbourne. Thus, it is crucial to separate business and personal expenses. Here is how it can be done.
The first step towards organising expenses distinctly is to set up a business account. Using the same account for business and personal use makes it challenging to maintain the records. Thus, expert bookkeepers in Melbourne suggest setting up a new business account and getting a business credit card for purely business transactions.
It will ensure that there are no accounting errors and that every business expense is accounted for and recorded accurately. The bank statement and the credit card statements help with bank reconciliation and the account details help to send invoicing information to customers and suppliers.
Established bookkeeping companies and expert professionals in Melbourne use accounting software to offer error-free financial reports, automate invoicing, record all transactions in real-time, conduct income tax calculations and avoid fraud. It saves the time spent on manual data entry and recordkeeping.
The bookkeeper uses the reports and financial data to draw inferences and offer financial advice to the entrepreneur to identify opportunities and invest wisely. They ensure that the business is financially stable and enjoys a positive cash flow at all times. It is possible only when they have the bill receipts and invoices organised in the system.
Business owners should not be free to take out money whenever the business makes a profit. They should have a designated salary which must be estimated with the help of the bookkeeper. While some entrepreneurs set a percentage of the profits as their monthly remuneration, others follow the industry trends.
Whatever method you choose to pay yourself, you will have your income separated from the business income. So, you will not be eating into your business’s profits in Melbourne.
The bookkeeper creates the monthly, quarterly and annual budget for the company. They take into account the available capital and the estimated revenue generated from sales to prepare the budget.
It includes the allocation of funds to every business function and ensures that the limit does not exceed. Thus, the business owner in Melbourne will not have to use his personal savings to cover the additional costs. So, budgeting is essential to keep the expenses separate.
Many business owners are not clear about the segregation of expenses and make the mistake of including them in business tax deductions, such as using the business card for a dinner date. The Australian Taxation Office can slap a penalty on the business if it makes this error. Thus, it is critical to determine what can be claimed as business tax deductions.
Your bookkeeper will help you determine the tax concessions that apply to your business in Melbourne. Those who run their business from home are often unclear about this distinction. Thus, they should hire a bookkeeper to check the part of utility bills that can be claimed as a business expense.
Entrepreneurs often use their personal items for business purposes and forget to add those costs to business expenses, such as using their car for company travel or mobile phone for making calls to clients and suppliers. It can be challenging to keep track of such expenses, but your bookkeeper in Melbourne can help in this regard.
They keep a log of such expenses and reimburse the business owner immediately. It is essential to keep receipts for these transactions. It helps document everything to avoid confusion regarding segregating business and personal costs.
Your employees who get reimbursed by the company should know how to separate their personal expenses from business expenses. The bookkeeper should train them in this regard to avoid facing losses. They should know how to track and inform business expenses and avoid overcharging the company.
It is best to give the employees company-owned electronics rather than asking them to use their own. These include laptops and mobile phones. If the suppliers are also trained to keep their expenses separate, it can benefit the business in Melbourne.
Separating business and personal expenses is vital for accurate accounting and recordkeeping. It ensures that your savings are intact if the business faces losses or vice versa. With the distinction in place, finances can be managed professionally, and tax liabilities can be met without challenges.
