Separate Your Personal and Business Bank Accounts
Congratulations! You’ve started your business and it’s up and running. Now that the wheels are moving, focusing on finances and how to organize them are key. Too often, individuals take the simple route of using personal accounts for business purposes. While this may limit costs and reduce fees, mixing personal and business assets may cause issues in the future. From audits to book keeping, separating personal and business finances are a must.
The first and most notable reason for separation of business and personal finances is organization. When figuring various financial numbers in business, you must keep it that, business only.
Keeping business related financials allows you to generate current profitability with ease. You will also be able to generate projections and cash flow analysis without the interference of personal expenditures. The ability to generate these numbers will enable the ability to seek out leverage in the event business expansion.
Finally, keeping business accounts separate from personal accounts will limit unnecessary stresses. Risking or utilizing personal funds for business can lead to disaster. Leaving the two worlds separate will greatly benefit you as your business grows.
Secondly, the issue with using a personal account for business operations is the potential for inaccurate records. When completing items such as taxes or payroll, there are consequences for each transaction. Being able to generate exact business numbers are a must, and comingling personals expenditures will cloudy the process.
Another aspect that may be undervalued is if you run a business and outsource the financial operations, it could cost more when personal and business funds are together. The individual working must separate business from personal, and from there they can begin processing the data.
Other aspects to keep in mind are customer service. If a client needs to see records or invoices, the ability to produce these documents quickly is important. It will keep your business looking professional and well equipped. Not only that, sending checks with a business name ensures a professional look.
Lastly, keeping separate accounts will prepare you for when your business is audited. It is simply a matter of when, not if, your business or company is audited. Audits have a negative connotation, but in fact it ensures businesses are running properly and in accordance to the law. Having a business account will allow auditors to see what they need and nothing more.
Also, from a legal standpoint, having a business account can keep your personal assets safe. When forming a business, many choose an LLC or corporation. Under these statuses, your personal assets are safe from suing parties should the occasion arise. By having a separate business account; there are no questions as to where each line items belongs.
It may seem economical to run business operations from a personal account and that may suffice for the short term. However, it is more practical and formal to open a business account, keeping personal transaction separate. Avoiding fees and other hurdles can seem convenient, but should you be audited or need a loan, ensuring business assets and numbers are separate can save you and your company time, energy, and stress.