5 Reasons a Separate Business Account Benefits You
When you first start your business one of the first items on your to-do list should be opening a separate business account. If you plan to save money (and you should!) also open a savings account. Furthermore, planning to pay for expenses with a credit card? Open your credit card in your business name!
I know it seems easier in theory if you manage one account for both business and personal transactions and simply total your business income and expenses - especially when you are just starting out. It isn’t easier and here’s why:
1. There are two important parts to accounting for your business transactions. The first part is figuring out what is in fact a business transaction. The second is categorizing your transactions accurately. With a separate bank account, you will automatically check this first part off your list! Now, all you have to do is make sure you use the proper account for your business transactions!
2. As your business grows and simply for your own sanity, you’ll want to hire a pro to help organize your bookkeeping. When your business transactions are through your personal account, it will take your accountant more time (billable time) then if your business transactions were separated already. It also becomes more difficult to differentiate what is a business expense which often leads to missed deductions. It will save you time and money to have a separate account!
3. You also want your customers and clients to know that you are an established business and your business is here to stay. Having your business name show up on your clients bank statement when they have made a purchase from you gives them confidence in your business. An account in a personal name while growing relationships may mean this is a ‘kind of’ business.
4. Your personal information is also no longer at risk for identity thieves. Having a dedicated business account limits access to your personal financial data. Security of your personal information is of the upmost importance as identity thieves are evolving more rapidly.
5. Finally, the IRS recommends business transactions and personal transaction remain separate. If you become the target of an IRS audit, commingling of personal and business transactions lends for more scrutiny. Clean books and clearly separated business and personal transactions, preferably by use of designated accounts leads to a much more favorable outcome.
Did you apply and receive Payroll Protection Program (PPP) funds? If you did, a separate bank account to track your expenses (ex: payroll, rent, utilities, and other costs) you used with these funds will make auditing easier. Since a portion or all your funds may be forgiven, make expense tracking simple by using a separate account. It may take some initial setup but the ease of pulling reports and providing documentation will be well worth it!
Not only does it mean easier bookkeeping, it saves you time and money!
There are many reasons to open a separate business account. Not sure what qualifies as a business expense or have questions on opening a business account. Call me today to schedule a free consultation. Let’s make sure you start this upcoming year right!