Why You Need a Business Account
Published July 19, 2019
If you’re working on starting your own business, congratulations! While it might seem like a daunting and scary journey, it’s one of the most rewarding. Before you start collecting income from your customers, it’s important to make sure you’re set up with the proper documentation and bank accounts.
While this seems like a given, it’s still worth mentioning that having a business bank account is critical to you and your business’s financial success. Even though your customers will be paying you for your services, the money will really be going to your business.
It’s never a good idea to mix your personal money with money made from your business. Here are four ways having a business account will help you avoid other headaches.
Imagine what your bank statement would look like if you mixed your business and personal transactions. Now imagine that over the course of a year’s worth of business. That's what you would have to sort through when tax time comes around. No one wants to deal with that.
If you have a separate account for your business, you will have clear records at the end of the year. If you remember to keep all of your invoices and receipts then match them up to your checkbook and bank statement entries you will be in good shape when tax season arrives.
No matter how big your business is, it’s going to be vulnerable to legal trouble. This can be due to an unpaid vendor who is suing you, an angry customer, or a variety of other reasons.
To minimize the risk of losing your personal assets if a lawsuit is filed against your business, you should have a separate business entity created. You have several options, such as a sole proprietorship, corporation, LLC, etc.
In addition to all of the IRS reporting and accounting benefits, if you own a business, you need to create some type of legal protection. Once you actually start running your business, the most important thing you can do is not use your personal bank account for business purposes.
If there are liability issues with your business, the first thing the courts will check is if your personal accounts have co-mingled with your business funds. If there is proof of co-mingling, then your personal assets may be at risk.
You need to make the distinction and separate your finances. Doing this can help you avoid tax issues that can occur when you mix personal and business funds in the same bank account. It’s going to be more difficult for you to categorize business versus personal purchases if you’re audited and all your money is together.
Accounting for a business is often more complicated. Keep personal funds personal, and business funds in their own business account. This will make your life and business easier.
You always want your business to maintain a professional appearance. If you keep your business finances separate from your personal finances, that helps enhance your image of professionalism.
This also means that when you write checks to suppliers, they see that those checks are coming from a business account. If you pay taxes, the IRS sees that the tax payments come from a business.
While it’s more work to keep track of multiple banks accounts, it will keep you and your business out of trouble and help you become an even more successful business owner.