The question I get asked the most is, “is it really important to separate my small business from my personal?”
The answer is, YES. I cannot stress enough how important it is to separate your business income and expenses right from the start. Separating your business expenses are important for so many reasons.
Here's top 5 reasons why it's so important.
1. Know your profit and loss per month, quarter and/or year.
As a small business owner, especially someone just getting started. It is super important to know what you’re making and what you’re spending. This gives you the ability to know if your income is more than your expenses and if any changes need to be made for the upcoming months.
2. Income tax season.
No matter the size of your business, when filing your yearly income tax with the CRA your business needs to be included in that as well. No matter the amount, it is important to report. You’ll need to know your accurate gross income amount and your accurate gross expense amount by category.
Keep your eyes peeled for our upcoming blog for more details on expense categorizing.
3. Setting goals and managing your monthly/yearly budget.
When setting your goals for the upcoming year you need to know what your current year has been like. This gives you the ability to set realistic goals for your business. Knowing your monthly/yearly income help ensure that you are setting the proper goals for yourself and your business to be able to grow and strive each month. This will also give you the ability to do the same with your expenses. You can revise and remove any unnecessary expenses your business doesn’t need, this give you the option to use that now extra income elsewhere or for your own personal payout.
4. Knowing when you’ve hit the $30,000 in sales mark for GST/HST.
Knowing your average monthly/yearly sales income ensures you know when to request a GST/HST number and to start submitting monthly/quarterly reports. Falling behind on returns and remittances can really set a small business back.
5. If contacted by CRA.
If contacted by the CRA you are able to easily provide your monthly income and expense statements to show that you’re running your business legitimately. No matter the size of business or shop, Canada Revenue expects you to report all of your earnings, including small “side hustles”.
Starting your own small business/shop takes a lot of work outside of doing what you love most. By separating your business from your personal makes it’s a lot easier for yourself and/or your bookkeeper. It will also save you a lot of time and money in the long run!
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