The MSME sector in India contributes almost 7% to India’s GDP and constitutes around 45% of its total manufacturing output. Moreover, this sector provides employment to millions of Indians as well, making it an essential part of this country’s economy.
However, a point where most entrepreneurs, especially small business owners, struggle with is while differentiating between their business finance and their personal one. Usually, individuals start their journey with private funding, using their house as an office. Nevertheless, with time they need to balance it to avoid facing any unwanted monetary and legal issues.
Tips to establish a balance between business and personal finance
Here are some tips on balancing between the two types of finances and eliminating any confusions –
- Set up different accounts
The first step towards separating business finances from the personal one is creating different accounts for transactions. It helps entrepreneurs keep a track on their personal expenses, and during the income tax season, they do not need to go through the entire transaction history and figure out the status of any particular transaction. Resultantly, it saves both time and hassle during this period.
- Keeping track of personal items used for business
For a small scale business, owners often use their personal items for the organisation’s purpose. It is essential to keep track of such expenses, as, during tax time, it is easy to identify the expenses and prepare the tax return documents accordingly.
- Avail a business credit card
Apart from lending funds anytime, anywhere, a business credit card also helps in creating a credit history for the respective organisation. Moreover, it is separate from the entrepreneur’s personal repayment history, and based on this, a firm can avail unsecured business loans without any hassle.
- Draw a fixed salary
Instead of withdrawing funds as per requirements, business owners can implement a salary system for themselves, and try to maintain that.
Moreover, instead of cash withdrawal, they should opt for fund transfers. Doing so will help keep a record of what will count as an expense for the business, and an income for the business owner. Hence, during the final audit, there will be no hassle of justifying the company expenses.
- Keeping hold of every receipt
Entrepreneurs may use company resources for personal purpose or vice-versa. In that case, it is ideal to keep the receipts and store them separately. A practice as simple as that can help business owners to identify the expenses for what they are, and avoid any complications during the year-end audit.
- Understand the fine line
In the case of a small business, entrepreneurs often fail to address the difference between personal and business expenses. They often mix them up and end up hurting the finances of their company. Moreover, it is one of the essential financial skills a business owner must have, that they end up failing to implement.
Keeping the business finances separated from the personal ones are imperative to manage the accounts of a company. Otherwise, it can create an unwanted confusion during yearly balance sheet preparations, and ITR filing.
Moreover, having a proper balance sheet is vital to apply for a business loan, as it proves the yearly turnover of an organisation. Lenders like Bajaj Finserv emphasise on the submission of ITR documents and balance sheet to evaluate a company’s financial foothold and extend up to Rs.45 lakh against a tenor that can extend up to 84 months.
Additionally, the availability of pre-approved offers further helps to streamline this loan application process. Borrowers can bypass the hassle of submitting a long list of documents and save time. This offer is applicable to financial products like business loans, personal loans, etc. Entrepreneurs can check their pre-approved offer by submitting essential contact details.
It is imperative to distinguish between business finance and personal finance to manage each segment properly and avoid facing unnecessary complications. Moreover, it is a vital financial habit that every business owner must have to ensure that their company’s operations remain uninterrupted.