For many startup owners, your business can feel like an extension of yourself. All your hard work, passion and dreams get poured into making your business succeed.
However, no matter how invested you feel in your business, blurring the lines between your personal finances and your business finances is a bad idea. From tax benefits to branding- keeping your personal and business banking separate is essential to a healthy business.
Opening a new bank account for your business is not particularly difficult, yet many new business owners procrastinate or forget to complete this relatively simple task.
Read on for the top six reasons to keep your personal and business banking separate.
1- Better accounting
As a business, there will be a constant flow of money in and out of your accounts. At the beginning of your business, you might be struggling to find investors or stay afloat, scraping perilously close to bankruptcy while you find your rhythm.
To avoid stress and have a clearer picture of where your business is at financially, you need to have a separate business savings account. You will find it easier to manage day-to-day expenses and to complete statements.
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2- No tax trouble
Businesses and individuals are taxed differently for obvious reasons. When it comes time to file taxes, you will need to declare income and expenses related to your business. The U.S government also requires that you keep clear, accurate and complete records of all these dealings. As a business, you might also be eligible for deductions.
Keeping your accounts separate will simplify the tax process by making it easier to account for all your business spending and income. With a separate bank account, you won’t have to dig through to find every small expense down to coffees and taxi rides. It will also protect you from claiming too many deductions or missing deductions you qualified for.
3- Improved credit
As a small business, you might be at a point where you want financing from investors. It is much harder to convince investors to come on board if you can’t account for income, expenses or past credit.
Keeping your business and personal banking separate gives the investors an easy way to see a snapshot of your business and the risk and shows them that you are serious about committing to your business.
4- Professional branding
Branding is everything when it comes to business and opening a separate banking account for your business is an important step you can take to improve your reputation and come across as more professional and committed.
From clients to competitors to investors- if they get the impression that your accounts are messy or that your business is more of a hobby, that will discourage them from taking you seriously, and no business owner wants that.
5- Less stressful
So far, most of the points have touched on the ease and convenience of opening a business banking account, but you should also consider the less tangible benefits of keeping your personal and business banking separate.
As a new business owner, you already have enough on your mind. Having to take the time and energy to constantly be looking at one bank account and trying to keep track of your expenses is an added source of stress. Simplify your life and reduce your stress by making it easier for yourself to keep track of your business.
6- Less liability
Even without the threat of tax audits, your business could still be jeopardized by unclear accounting. Theft, fraud and embezzlement happen in even the best businesses, but you can protect yourself from allegations by keeping clear accounting.
If you have employees, keeping their payroll separate from your personal business account also reduces your liability. Although the chances are low, as a business owner you need to protect yourself by keeping clear records and having a separate banking account achieves that.
Wrapping it up
Luckily, opening a business bank account is relatively cheap and easy. Hopefully this article convinced you to take such an important step.