6 Tips to Separate Business & Personal Finance for SMEs in the UAE
Having a robust financial infrastructure is of the utmost importance to the business growth of small businesses in the UAE. One of the biggest hurdles in this pursuit is the laxity of the entrepreneurs in keeping their personal and business finances separate. From an accounting perspective, this is critical for small businesses and startups to safeguard their assets and debts. This calls for the need for maintaining separate books of accounts for personal and business use. Small businesses can hire accounting & bookkeeping firms in the UAE to establish a clear line to separate personal and business finances.
Keeping personal and business finances separate will streamline the accounting process and enhances cash flow management. Putting some extra efforts into making the accounting process by avoiding the mixing of the two will help entrepreneurs in allocating their finances in an easier way.
The following are some of the crucial tips for separating the personal and business finances of the company:
1. Plan and Prepare Budget
Small businesses often launch with big aspirations and ambitions of making a profit. By exclusively focusing on the bigger picture the business owners ignore the ground reality of their finances. Having a sound financial budget right from the go would keep the entrepreneurs grounded while pursuing bigger dreams of business growth. A budget would help the business owners achieve credibility on spending.
2. Business Credit
Entrepreneurs need to track business expenses and have firm control over spending and credit. Business credit cards play a big role in uncoupling the personal and business finances of the company. Business credits are pivotal for securing loans for the business. Banks will look at the personal credit of the owner to make the decision on whether to extend the credit or not. It is important to note that businesses can increase their borrowing power with a strong credit score.
3. Outsourcing Accounting Firms
Businesses can save time and money by hiring the services of the best accounting &bookkeeping firms in the UAE. A well-established accounting firm would put inefficient accounting processes in the company. Outsourcing the accounting process would help business owners draw a clear line between personal and business finances.
4. Maintain Separate Accounts
Maintaining separate accounts is paramount to avoid the mixing of personal and business finances and it would help the businesses assert the legitimacy of their companies. With the help of robust software like Quick book, companies can generate business/ expense accounts. After that, the personal income or expenses can be added to the software under a separate account named ‘income and other expenses’.
5. Reward yourself with a Salary
It is often observed that small business owners draw money from their businesses for personal use. Constantly pulling the money from the business would blur the separation between business and personal profits. This would affect the profitability of the business by leading to cash burn. Business owners can rightfully reward themselves with a salary for avoiding this fatal mistake.
6. Open a Business Bank account
Maintain two different bank accounts for business and personal needs. It helps in the personal checking of accounts. It smoothens the reconciliation with your business software. It makes a smart look for your business. This enables an exemplary way of bookkeeping so that the accountant can feel less stressed about the work at the time of tax filing.
Benefits of Separating Personal and Business Finance
Blending personal and business finances would only help to create a bad reputation among the customers. The customers would only engage with companies that look more professional. No customer would prefer to write checks in the name of the business owner.
Protection from Insolvency
Combining personal and business finances would only result in killing the business. By doing so the business owner would drain the company of its valuable resources creating cash flow problems. This would lead to the untimely death of the business.
Ability to Prove Financial Stability
Business owners should be able to check and prove the financial stability of their companies at any time. If the personal and business accounts are merged, it would be difficult to prove the financial health of the company to banks or other shareholders. With the support of the right accounting firms in the UAE, the companies can bring credibility to their financial statement.
Accounting & Bookkeeping Services from Jitendra Chartered Accountants
Small companies that ignore the importance of the best accounting processes fall into the pitfalls of cash burn and die an untimely death. Mixing of personal and business finance is one of the most common mistakes that businesses commit that leads to improper cash flow management. To avoid this, the companies must put in an efficient accounting system with the help of the best accounting& bookkeeping firms in the UAE. Jitendra Chartered Accountants (JCA) is an established name in the industry that offers high-class accounting solutions to all types of businesses in the UAE. JCA’s professionally qualified Chartered Accountants will ensure that the companies have efficient cash flow management thereby leading the businesses to sustainable growth.