Most people have a personal bank account at a bank or credit union. The purpose of the accounts is to provide typical personal banking needs like checking and savings, debit cards, and ATM access. When you start your business, you’re faced with the choice. You can use your personal account for your business finances, or establish a separate account. While it is possible to use your personal account when your business is small, it’s best to set up a separate account as soon as possible. Let’s look at four reasons a separate business account makes good financial sense.
1. It Looks More Professional and Credible
When your business pays someone, having your business name on the checks will make your business look more established. This is also true when customers write checks to you. They will naturally expect to write it to the name of your business. If you tell them to make it out to you personally, it makes your business look less established and credible. In addition, your bank may have issues with checks made out to your business name when you use a personal account.
2. It’s Easier to Identify Business Expenses and Purchases
If you misplace a business receipt, it’s necessary to reconcile your expenses using your account records. When you use your personal account for business expenses, the business purchases are mixed with your personal payments. Most people have more personal expenses than business expenses, and it’s difficult to separate the purchases you made for your business. Especially if you buy personal and business items from the same source. Without a receipt, you might find yourself wondering if that $22.48 you spent at Costco three months ago was for a personal DVD, or for the paper you use for your business printer. If you mix your accounts, there’s no way to tell.
3. It’s Easier to Track Taxes
Business owners are expected to stay on top of their taxes throughout the year. The number and type of taxes depends on your business, but common taxes include payroll taxes, income taxes, property taxes on real estate the business owns, and excise taxes. Some businesses must also collect taxes directly from the customer, such as sales taxes and permit fees. With a separate business account, you can deposit the tax money you collect and not have to worry about being caught short when tax payments are due. Having a separate business account also provides a clear audit trail if you are investigated by the Internal Revenue Service or state tax agency.
4. You Can Lower The Fees For External Accountants
Whether you choose to hire your own accountant or take your records to an accounting agency, handling your accounting will be easier and take less time if you have a separate business banking account. If your personal banking transactions are not commingled with your business banking transactions, there will be fewer records for the accountant to sort through, which means lower fees and a quicker job. If you use your personal banking account for business purposes you may want to consider a change. A separate business banking account can provide you with financial clarity and simplify your bank reconciliation process. It can also boost your businesses professional appearance and credibility.