This article has been reviewed by licensed insurance industry expert, Moshe Fishman.
Have you recently opened a new small business? If so, you’re not alone. Entrepreneurs have been increasing steadily over the past few years. In fact, 2021 proved to be a record year for small business startups with over 5 million new business applications. Technology has made it possible for more people to venture out on their own to start small businesses without having to make a big investment. But as you start your business, you may find it difficult to separate your professional life from your personal one.
Dealing with so many details and plans on a daily basis can be overwhelming. Technology has made it easier to overlap business with personal activities including finance and social media, not to mention your time. Especially if you work from home. You can easily find yourself overworked and stressed out as you try to get through each day.
With that in mind, it’s important to keep yourself healthy, your business growing, and customers happy! Keeping things separate can help you achieve a more organized approach and help you to succeed in both your life and your work. So, how do you set boundaries?
The most important thing you can do when setting up your business is to separate it from your personal assets. If not, you leave yourself susceptible to losing everything should your business become liable for damages or injury. According to the U.S. Chamber of Commerce, co-mingling is never a good idea, especially when it comes to money. But the lines between business and personal don’t just blur with finances. Think computers, phones, insurance, vehicles, and your property!
Handling business finances is difficult if you are mixing them with your personal affairs. If you don’t know that now, you may find out at tax time that your revenue, expenses, and assets will need to be reported separately. Mingling funds and expenses in the same bank account could prove to be a big headache. Turbo Tax warns, that “Tax season requires some planning and organization for everyone, and that’s especially true when you’re self-employed.”
This recommendation of separating accounts also goes for cash apps like PayPal, Venmo, and others. Mixing your business and personal income that you receive from cash apps could end up costing you more in taxes. For example, starting in 2022, cash apps are required to report any income you receive over $600 to the IRS. That means, if you receive a $100 birthday gift on the same app that you receive business income, the gift will be reported along with your business revenue.
The same is true for credit cards as it’s easy to tangle up revenue and costs. And according to American Express, it doesn’t matter what type of business you own.
Is your personal car doubling as a business vehicle? Maybe you have a delivery service, or you travel for business. If so, you will need to purchase a commercial auto policy to protect your assets. Because if you are involved in a work-related crash using your personal vehicle, your personal auto insurance will not cover it. Ideally, using a separate vehicle with a commercial auto policy will provide the best form of protection.
As a small business owner, if your business relies on drivers to use their own cars to deliver goods or services, your drivers should have commercial auto coverage on their vehicles. Otherwise, you could find yourself liable if your driver causes an accident.
Many entrepreneurs find that working out of their home is a cheaper option. You can skip the need to rent a space, buy furniture, phones, computers, etc. In addition, you may benefit from tax benefits. Check tax laws regarding the business use of your home to see if you can deduct some of your home expenses to offset your business income. Some deductions may include interest on your mortgage, utilities, property taxes, and maintenance on your home. Of course, you would need to dedicate a certain part of your home to operate your business.
But there are downsides to making your home your business headquarters. One issue would be having enough space for employees or to see clients. (Not to mention sharing your home and family with strangers.) And as your business grows, so will your need for additional space.
You should also check with your insurance agent for recommendations on home insurance coverages to protect your home and assets.
There’s no question that businesses today benefit from technology. Innovations have made online goods and services easy for customers to access businesses from anywhere. In fact, according to Intuit, 88% of small businesses say online sales will play a key role in generating revenue in 2022. And a whopping 97% agree that digital technology will be key to their business in the coming year. But here again, combining your business's digital activities and equipment with your personal ones can be a problem.
There are benefits to purchasing computers and other devices for business. The biggest advantage is that you can deduct the costs of these purchases on your taxes if you use the device for business over 50% of the time. Of course, you would have to keep track of the percentage of time and resources used for business versus personal. On the flip side of this, you won’t be able to apply this deduction if you convert a personal computer for business use.
Use a dedicated smartphone for your business to help automate customer communications. Doing so will provide better security and ensure privacy and might even get you a tax deduction. A separate phone will also help you look more professional than using your personal cell phone.
Some entrepreneurs mix their business and personal accounts as a successful marketing tactic. And this may work well for solopreneurs who have lots of followers. Problems could surface, however, when your customers decide they are tired of looking at your kids and vacations.
On the other hand, having a business social media account with very few followers and comments/shares could be construed as a negative. This explains why some businesses decide to remove their social media icons from their website. You should weigh both sides of the benefits of combining or separating your social channels as each situation is unique.
Without your health, it’s difficult to function on a day-to-day basis. This is especially true if you are juggling a business/personal home life. That’s why it’s so important to maintain a healthy work-life balance—especially if you’re dealing with difficult circumstances. Unfortunately, many entrepreneurs struggle to keep this healthy balance, which is key to the overall well-being of both you and your business.
Start by identifying the priorities in both your business and personal activities. It’s difficult to run with all engines firing at once all of the time. Start by making separate lists for your life, family, and work.
Designate work hours to help organize your priorities and stay on track towards balancing your precious time. This is critical if you are working in your home. And just like a regular employee, as an entrepreneur, you need time away from work!
As your to-do lists get longer, you’ll dig more time into your personal life. So, when you find yourself having more work than the time allotted to do them, it’s time to think about delegating business tasks to other people.
Don’t worry if you haven’t yet separated your business from your personal life. You can start now with these steps. Because it’s never too late to gain control of your life (and business)!