Keeping banking affairs apart brings benefits of time, peace of mind
Popular advice in small business bookkeeping and accounting has always been to keep business and personal finances separate. Separate accounts for your household and company are a smart idea for many reasons. Let’s look at why keeping individual bank accounts for personal and company matters will benefit you – and your company - in the long run.
It shows professionalism. Writing a check to a client with your name on it - not the name of your business - hints that you may not take your work seriously. Image is everything. A small business banking account positions your company for growth. Business bank account fees are partly tax-deductible, as well.
It makes it easier to spot deductions. With a mish-mash of personal and business banking on your account statement, how will you organize potential deductions? You may be entitled to free money, but you have to be able to spot where company deductions are, first. Messy record-keeping can cost you in time and money, whether you do your own taxes or pay someone else to do your return.
It will streamline the situation if you’re audited. According to the IRS, only businesses can deduct business expenses, with specific guidelines on what is a business and what is a hobby. Personal expenses running through a business account may appear to be a hobby, and prompt explanation. Why not make things simpler, and do separate accounts from the start?
Say goodbye to tax tie-ups. Without individual bank accounts, income and expenses that are related to your company will need to be separated from your personal transactions. Going through every receipt and transaction will be time-consuming work.
Though it may seem easier to keep your banking transactions in one place, or in one account, it will soon become evident that it isn't. No matter how small your company is, start it out on the right foot. Or, if you're currently using one bank account for your business and personal finances, go open up that business account now. It's never too late to make the switch, get organized, and save yourself hassle and grief in the future.
Besides, isn't it better to put your energy into growing your business, not poring over receipts and line items?