Let’s set the scene. You’ve got your business idea, you’ve started bringing in clients, created your website, and you’re set up for success…or are you?
While things pick up, room for error and disorganization can begin to increase.
When it comes to your business finances, you aren’t the only business owner who may be forgetting one major step…
A survey by Citizens Bank indicated that nearly 26% of business owners do not separate their business and personal bank accounts. 98% of those surveyed use their personal account because of the lack of monthly maintenance fees, but this may be doing them more harm than good.
It’s vitally important to keep your business and personal bank accounts separate, even if you’re just starting out.
Why?
It’s simple: when it comes to time and money, you want to do your best to be as clear and as organized as possible. If you are not currently separating your business and personal finances, you should start today.
If you haven’t yet, I promise you surely are not the only business owner who has forgotten this key step.
Still not convinced?
Here are 5 important reasons you should start separating these accounts immediately:
It will make your life easier during tax season.
If your business is a corporation, you are required to maintain a separate business account.
In the case of a sole proprietorship, a unique business account will make it easier to track business income and expenses, especially in the case you are audited.
You won’t be wading through your bank account trying to figure out if that meal at the steakhouse was a business lunch or for your friend’s celebration dinner.
With all business transactions separated and flowing through one bank account, you will know exactly how much revenue you have earned and what your expenses are, for maximum tax write-offs.
It’s easier to track cash flow.
You are less likely to run into cash flow issues, since you will know exactly how much is available to spend on business expenses. You’ll know that you have $100 from business profit to put towards purchasing a new computer rather than use the $100 your aunt gave you for your birthday.
You can protect your assets.
In the case that you are sued, your personal assets are more likely to be protected when you have separate bank accounts.
Choose the right business structure, and use your business name on all documents, checks, and accounts. This will illustrate that you made the effort to keep business and personal expenses separate.
It’s more professional.
Should your clients deposit funds directly into your account, they are more likely to view your business as credible when it’s a business account. A bank account in your business’s name will show your customers that you are serious about your business. It will help to bolster their trust in your work.
It’s easier to obtain a loan.
When you’re ready to expand your business, most lenders will look for extensive financial reports. Having a business bank account will make it easier to pull the needed information for financing applications.
Especially in times of economic uncertainty, you want to have easily accessible data about your business to be able to make decisions in a timely manner. Not only is separating your accounts good practice, it will also help you to feel more secure with the state of your business. Your peace of mind is priceless and this is always one of the first things I advise my clients to do, if they haven’t already.