It’s not personal, it’s business.
If you own a business or are in the process of starting one, it’s time to stop using your personal bank account for business transactions. Having a dedicated business bank account is an important part of establishing a company and is crucial for many reasons. Not only is it easier to stay organized and track your expenses, but keeping your personal and business accounts separate can protect you legally while safeguarding your identity.
One of the first steps of launching a business should be to open a business checking account, yet all too often business owners make the mistake of mingling their finances. Here’s why having a clear separation of accounts can streamline your business, protect your assets, and establish credibility.
Keeping track of business expenses is much easier when you have a dedicated business bank account.
We all know how important it is to keep your books tidy, but this is difficult to do when your business and personal finances are intertwined. Having a separate business account means your business expenses are easily accessible in one spot, and you won’t have to sift through your personal transactions to pull out company-related ones. Every purchase that appears on your statement is (or should be) associated with the business, so there’s nothing extra to sort through.
This is especially important come tax time. Taxes are complicated, and, as your business grows, they’ll only get more difficult. Keeping track of everything throughout the year means that, come tax season, you’ll be less stressed and more prepared to file.
Not only will it be easier to do your taxes, but having a business account may help keep the IRS off your back. The agency is notorious for having strict rules about what can and can’t be deducted as a business expense—especially for people that work from home. If your business expenses are mingled with your personal ones, certain deductions might be deemed problematic — even if they are legitimate business expenses. If everything is tied to a business account, however, your expenses are less likely to raise eyebrows as they aren’t mixed in with personal ones.
Having a business account can provide legal protection.
The major benefit of having a corporation or LLC is the legal liability protection it provides. It defines your business as a separate entity from you, the individual, in any case of legal action. When you have a business bank account, the protection extends to this, too. For example, if your business gets sued and your personal accounts are wrapped up in the corporation, the court has grounds to go after you as an individual in addition to your company.
Another scenario where having a business account can protect you personally could be if the business fails. If for whatever reason, your business closes and your accounts are intertwined, you could be personally liable for any debts incurred by the business.
Finally, having a business account can help safeguard your personal identity. Running a business typically means you have to make frequent and, often large, purchases. The more transactions you run up on your personal card, the greater the risk is for fraud. Having a dedicated business account can keep your personal monies safe should any issues arise.
A business bank account can help build credibility.
Let’s face it: It’s just not professional to write personal checks to pay business expenses. Company checks can help build credibility and establish your entity as a legitimate business. When a vendor receives a check written from your business account, it can help build confidence. A business checking account can also lend credibility in the eyes of the IRS.
It might sound overwhelming—especially if you’re in the process of transitioning from a personal account to a business account—but completing this crucial step will benefit you (and your business) in the long run by keeping you safe, organized, and secure.