Separate Business and Personal Bank Accounts – Better Now Than Later!

Posted on Thu, Feb 03, 2022 ©2021 Drucker & Scaccetti

BankWhen entrepreneurs start new ventures, they have many things to consider. Funding, growing customers, hiring qualified staff, and bringing quality products or services to market are but a few. Opening a new and separate bank account, apart from a personal account, is sometimes delayed until later in the process, if it’s done at all. But keeping personal and business bank accounts separate is exactly what entrepreneurs should do early in the process, and it will pay off greatly! In today’s short blog post, we’ll run down some obvious (and not-so-obvious) reasons why.

 

Establishes business credibility: Unless the business is incorporated, a separate business account is not required. However, a dedicated account helps provide proof that you are running a legitimate, money-making operation. Using bill pay and accepting electronic payments with a business account establishes a greater level of trust with suppliers and clients, driving business growth.

 

Ease of tracking income and expenses: By using a separate bank account, you can track business profits and expenses without comingling them with personal banking activity. Flagging or separating business activity in retrospect in your personal account or for a significant prior period can be tedious and overwhelming. You may miss important tax-deductible expenses or revenue recognition options. This can lead to inaccurate bookkeeping.

 

Accurate cash-flow management: When all your business banking activity is in one place, you can see your current cash flow and analyze prior activity to estimate future cash flow. This can help with planning for significant expenses.

 

Take advantage of extra business banking services and credit card rewards: Some banks and credit card companies offer cash bonuses for opening accounts or cash-back options for spending. By having a separate business account, you may qualify for perks. These discounts and cash-back options can provide the much-needed cash flow for your new business. A new business account can also start a banking relationship that can help with applying for a business loan, if needed.

 

Streamline tax preparation: If your business income and expenses are all in one place, it is easier to compile the necessary information for your business tax return(s). A separate business bank account helps get you organized and can reduce professional time and fees associated with tax return preparation. If you prepare your own return, having all the financial information in one place can reduce frustration and allow you to spend your time growing your business instead of reviewing old bank statements for business expenses.

 

All the above benefits also apply to those who own rental units and even a side-hustle. A separate bank account can provide vital information to determine the viability of a new business, rental property, or a part-time endeavor.  

 

Most accountants can recite stories upon stories of merged business and personals accounts that make it difficult at best to file an accurate and timely tax return. Don’t be “that business owner” who mixes business and personal bank accounts.

Topics: bank statements, Bank accounts

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