Many new business owners have trouble separating their business and personal finances. Especially in the early stages of the business, entrepreneurs may use personal funds to pay for business expenses while drawing cash from the business to cover personal costs – while this practice may be common, it can become a nightmare from a taxation point of view.
Open Separate Bank Accounts
Since businesses and individuals pay different amounts of tax, it’s important to keep your finances separate by using separate bank accounts for your business and personal income. New business owners may not see the sense in this approach, since they may not be drawing salaries from the business in its early stages, but from the taxman’s point of view any funds which are deposited in your personal bank account count as personal income – and will be taxed accordingly.
Use a Company Credit Card
One of the most useful financial tools any business owner can have is a company credit card. You will be able to make purchases for the business without the inconvenience of making electronic payments, and will be able to track daily, weekly, monthly, and quarterly expenses more accurately by using a company credit card than by using petty cash.
Register Your Business
If you have a small business or are just starting out as an entrepreneur, you may still be trading as a sole proprietor. While there is nothing legally wrong with trading like this, it’s recommended that you register your business as soon as possible, and register the business with SARS soon thereafter. Your financial advisor will be able to guide you through this process so that your business is in good standing with the taxman from day one.
Keep Good Records
When it comes to taxation and monitoring the performance of your business, you’ll need to account for all the funds that flowed in and out of your business over the past 12 months. If the process of collecting slips, invoices, and statements is too tedious, or if you simply don’t have the time, hiring a part-time bookkeeper may be an excellent solution for your business.
With good record-keeping, your business will be an open book – you’ll be able to assess your company’s performance over the past quarter or financial year, and by tracking income and expenses you can make the running of your business more efficient. When it comes time to file your tax returns, you will have confidence in your company’s books as they are submitted to SARS for assessment.