Separate your Business and Personal Bank Accounts

If you are a small business owner, you probably consider your business as part of your identity. Under most circumstances, that’s a good thing – no-one cares about your work as much as you do. However, when it comes to business and personal finances, it’s best to keep them separate.

Most businesses, at some time or other, go through a rough patch. In tough times, maintaining a separate business bank account will safeguard your personal finances and, to a certain extent, even provide you with mental peace and stability. Here are a few reasons why you should open a separate bank account for your business if you don’t already have one.

Build a Business Credit Profile and a Professional Image

Although your personal credit history may be good enough to get you a loan for your business, establishing a business credit profile could prove to be more beneficial in the long run. A business credit profile can get you better terms on loans and protect your personal credit health at the same time. Additionally, when it comes to writing checks, paying bills, or receiving payments, a business bank account will give your business a professional image and more credibility. Most business checking accounts come with checks and debit cards that will give you a professional look when making payments.

Save on Accounting Costs

Mixing up personal and business finances can make record keeping very messy. To sort through your muddled up accounts, you will probably have to employ an accountant, and paying your accountant’s bills will in turn lead to an increase in your expense account! Maintaining a separate business bank account will keep your accounting processes simpler and simultaneously help you to cut costs.

Avoid Commingling

Maintaining one account for both business and personal reasons can lead to commingling. This can be dangerous, as conducting your business through a personal bank account may expose your personal assets to risk in case of litigation. Avoiding commingling is also important if you are married. While no one wants to think about divorce, your business is likely to become a marital asset if it is not incorporated (and not an LLC or LLP) and you commingle the finances of the business with your spouse’s finances.

Maximise Tax Benefits

The IRS requires that, for income and tax deductions, business and personal transactions are separate. A business checking account will make it easier for you to segregate your expenditures that are deductible as business expenses and will help with documentation in the event of an audit by the IRS. In case you plan on making quarterly estimated tax payments to the IRS, you can deposit a percentage of each pay check in your business bank account to cover your tax obligations.This ensures that when the time comes to make tax payments, you don’t have to scramble in your personal finances to cover your obligations.

Manage Payment Processing Better

Maintaining a separate account specifically designed for your business is a foundation on which you can build transaction processes that will help you to run your business more efficiently. Moreover, when you receive payments for products or services, you may get a false impression of available liquidity if you see those revenues from business operations show up in your personal bank account. This can be avoided by keeping personal and business finances separate.

Investing in separate sets of books for personal and business purposes may require a little more time on your end, but it will yield meaningful results. It’s a great financial practice that will help you make wise decisions as occasions arise.