Many small business owners see their businesses as extensions of themselves. When they first start out, these owners throw everything they have into getting their businesses off the ground, often blurring the line between personal and business activities. One place where separation is necessary, though, is in the world of finances. Every business owner should separate their bank account from their business accounts.
Perhaps the most pressing reason to separate out your personal and business accounts is because it makes your accounting easier. Having a separate business account will let you see exactly what’s coming in and going out from your business, which allows you to make smarter spending decisions and allows you a better chance to see how your business is doing financially. Keeping your own money separate honestly just makes your life a little easier.
It’s even more important to separate things for the IRS. Having a clear record of all of your transactions under one account is going to allow you to prove that your profits and losses are what you claimed on your taxes. It will also show that any business expenses were clearly used for the business. While you might not always see the benefits, you’ll definitely be thankful if you ever get audited.
Your bank will certainly appreciate it if you have a totally separate account for your business. Not only is that going to be helpful if you’re applying for mortgages or credit cards in your daily life, but it makes it easier for a bank, like FNCB Bank, to see whether or not your business is solvent. This in turn can really help if you’re in a position where you need any kind of loan from your bank.
Finally, splitting things up keeps your assets safe. If a charge from a vendor goes through erroneously, you won’t have to worry about how you will pay your groceries. Likewise, getting your personal debit card stolen won’t mean that you have to freeze the accounts you use to buy inventory for your store. Keeping things separate is a great way to build a firewall between your personal finances and your business accounts.
It’s always a good idea to keep your business and personal accounts separate. Doing so frees up more of your time, protects you from mistakes, and even helps to ensure that financial issues on one side don’t affect the other. The best time to open a separate account is when your business is first starting, but it’s never too late to open an account in order to do things correctly.
Anita is a freelance writer from Denver, CO. She studied at Colorado State University, and now writes articles about about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing.