When running a handmade business, it’s easy to mix personal and business finances—especially when you’re just starting out. One day, you’re buying craft supplies with your personal card.
The next, you’re struggling to figure out which expenses belong where. Sound familiar?
Have you ever wondered, “Did I buy that shea butter for my soap business? Or was it for my own skincare stash?”—this post is for you! Let’s break down some simple steps to help you separate personal and business finances.
This way, you can stay organized and reduce stress. You can grow your business with confidence.
Why Separating Finances Matters
Before we dive into the “how,” let’s talk about the “why.” Keeping personal and business finances separate:
✅ Makes bookkeeping easier – No more sifting through bank statements trying to remember what each charge was for.
✅ Helps you track profitability – You’ll clearly see what’s coming in and going out.
✅ Simplifies tax time – Avoid messy tax filings and potential IRS trouble.
✅ Builds business credibility – Looks professional when dealing with customers, suppliers, and lenders.
Now, let’s get to the good stuff—how to actually do it!
Step 1: Open a Business Bank Account
This is the #1 rule of financial separation! Even if you’re a sole proprietor, create a separate business account. This prevents you from accidentally using personal money for business expenses.
🛠 How to Do It:
- Choose a bank that offers low or no monthly fees for business accounts.
- Bring your EIN (Employer Identification Number) or SSN (if you’re a sole proprietor).
- Start using this account exclusively for business income and expenses.
Pro Tip: If you’re not ready for a business account, start with a separate personal checking account. This account should be dedicated to business transactions ONLY. It’s better than mixing everything together!
Step 2: Get a Business Credit Card (or Debit Card)
A business credit card keeps expenses separate and builds business credit over time. If you prefer to avoid debt, a business debit card linked to your business checking account works just as well.
🛠 How to Do It:
- Use the card only for business purchases (e.g., supplies, tools, shipping costs).
- Avoid using personal credit cards for business—it gets messy fast!
Pro Tip: If you accidentally use a personal card for a business expense, reimburse yourself immediately. Transfer funds from your business account. Make sure to document the transaction.
Step 3: Pay Yourself a Salary
Rather than dipping into business funds whenever you need cash, set up a regular paycheck. It can be a small, fixed amount.
🛠 How to Do It:
- Transfer a set amount from your business account to your personal account each month.
- Treat it like a real paycheck to create financial stability.
Pro Tip: If you’re making inconsistent income, start with a percentage-based approach (e.g., 50% of profits go to you, 30% to business expenses, and 20% to savings).
Step 4: Use Accounting Software or a Simple Spreadsheet!
Tracking transactions ensures you always know where your money is going.
🛠 How to Do It:
- Use accounting software like QuickBooks, Wave, or FreshBooks to track business finances.
- Prefer a simple approach? Use a Google Sheet to record all business income and expenses.
Pro Tip: Schedule weekly “money dates” to review your books. Grab a cup of tea. Put on your favorite playlist. Make it a routine!
Step 5: Keep Receipts and Separate Records
Mixing receipts for personal groceries with business expenses? Big mistake! Keep business receipts organized and separate to avoid stress later.
🛠 How to Do It:
- Use a business-only email for receipts and invoices.
- Store physical receipts in a dedicated envelope or use apps like Expensify to scan and save them digitally.
- Categorize receipts: Supplies, Equipment, Marketing, Shipping, etc.
Pro Tip: The IRS loves clean records! If you ever get audited, you’ll be grateful you kept everything organized.
Step 6: Set Aside Money for Taxes
Nothing ruins a good year in business like realizing you forgot to save for taxes.
🛠 How to Do It:
- Open a separate tax savings account and set aside 25-30% of every payment you receive.
- Consider making quarterly tax payments to avoid surprises.
Pro Tip: Use an app like QuickBooks Self-Employed to estimate taxes and track deductions automatically!
Step 7: Get Professional Help When Needed
As your business grows, bookkeeping can get complicated. Consider hiring a bookkeeper or accountant to keep your finances in order and maximize deductions.
🛠 How to Do It:
- If you’re just starting, use free resources like SCORE or local Small Business Development Centers (SBDC) for guidance.
- When your revenue increases, invest in a bookkeeping service.
Pro Tip: Even if you DIY your bookkeeping, meet with an accountant. Do this at least once a year to ensure you’re on the right track!
Final Thoughts: Take the First Step Today
Separating personal and business finances doesn’t have to be overwhelming—start with one step at a time!
Recap of the Essentials:
✅ Open a business bank account.
✅ Use a business credit/debit card.
✅ Pay yourself a salary.
✅ Track income and expenses.
✅ Keep receipts organized.
✅ Set aside taxes.
✅ Get help when needed.
By following these steps, you’ll gain financial clarity, reduce stress, and make tax season a breeze!
Ready to take control of your business finances? Drop a comment below to start.
Reach out for personalized bookkeeping support. I’d love to help you create a system that works for you!
