4 reasons it’s important to have separate business and personal accounts
From day one, business owners should have a separate bank account to deposit their income and pay their business expenses. It’s easier, faster, and more accurate to claim business expenses.
It’s also useful to designate a business-only credit card for any business purchases.
Not only does it make maintaining your financial records easier, but there are several other reasons to keep your business and personal accounts separate.
1. Easier to track performance
Separating personal and business accounts helps get a clearer picture of your finances. Imagine trying to sort through a list of all your personal expenses and differentiate between work related and personal. This is not only true for day-to-day transactions but also when you're working with your accountant to understand your overall financial situation.
2. Tax compliance
Most businesses incur expenses when generating income and often these can be deducted from the income when calculating business income tax.
Having a picture of your business finances will make doing your taxes easier when the time comes to complete your returns. If you don't separate your business and personal spending, you could spend hours going through bank statements trying to identify each business transaction. Not only is this frustrating and not a great use of your time, it means you may also miss valid business expenses hidden in your personal bank statements and potentially lose out on possible tax deductions.
3. Business credibility
If you transact from your personal account, anyone paying you, from customers to other businesses, will know it’s your personal account. Having a business account from which you make payments, as well as log payments into, will help your business appear more professional and established to your suppliers and customers. It’s also an opportunity to get your business name out there, and hopefully as a result build trust and awareness of your brand.
4. Streamlined transactions and budgeting
If you have a business account you can link other accounts like a business credit card or a payment mobile solution, making for more streamlined transactions.
As your business grows you may find you have to open a business account in order to get financing and further expand. If this is the case, separating your personal and business accounts now will help you to easily provide any lender with full financial history of your business.
Businesses that leverage their own data are likely to be more successful in their goals and aspirations than those that don't. Create a business budget to help you figure out how much you have to spend, and to help manage your cash flow.
As a small business owner, it’s crucial to remember that your company is an independent entity; it’s free-standing from you and your personal finances. Keeping separate business and personal accounts provides a wide range of benefits including tax advantages and the ability to help you shield your personal assets. It also gives you a clearer picture of how well your business is performing.
