Following on from last week’s column, allow me to further deliberate on why it is crucial to separate the personal account from the business account.
As you go through your daily and monthly routines, navigating through the farming operations, it will be tempting to mix all your transactions, paying both personal and business expenses with one bank card.
After making these payments, most of us tend to store all the receipts in one file, that is if we keep the receipts to start with.
The mixing of transactions goes further, with financing business activities with personal funds to boost your farming or business operations. It is crucial to separate your transaction, even between business units or enterprises. Say you are operating poultry, livestock or crop production, you may need to separate the transaction related to each business unit, to ensure that you have an accurate reporting on cost, revenue and prices of each business unit.
Separating your personal and business finances will ensure that you treat your business as the independent entity it is while protecting your personal finances.
Thus, you must have separate bank accounts for personal transactions and for business transactions.
There are many benefits to separating your accounts and transactions; but two reasons stand out in particular;
Tax assessment
and submission
It becomes easier to prepare your tax returns at the end of the year when your transactions are done and stored separately. Bear in mind that from the agribusiness expenditures to operational, inventory purchasing, every single receipt is important. Once it comes to the time of submitting your tax returns (or handing over the receipts to your accountant), an accurate, clear collection of business-only transactions is going to save you a lot of time and a significant amount of stress for you and your accountant.
Personal liability
Separating your personal and business accounts is crucial for tax reasons, but it is equally, or even more important for the sake of your personal security and liability from the business.
It is risky to use personal finances to back your agribusiness operations, not just for the financial gamble but also for the personal liability and most importantly for the inability to understand how much your business actually makes, or loses and to carry out corrective measures timeously.
It is also advisable to create a business credit record, which gives lenders confidence that your business can and will repay its debts. Open separate bank accounts and transact accordingly.
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