If you’ve been using your personal bank account for all of your business transactions, you’re not alone. This mistake is one of the most common that new business owners make. If you continue down this path, though, it could lead you to trouble.
Using a personal bank account for business can lead to a range of financial problems, from inaccurate taxes to increased liability and poor cash flow management. Here’s why you should open a business bank account today.
1. Keep Your Business Finances Separate
The first and foremost reason to get a business bank account is to keep your business finances separate from your personal finances. You should create this separation as early as possible. Not only does comingling your personal and business finances make it difficult to stay organized and complete accounting tasks, but it can also present a risk to your business when it comes time to file your taxes.
2. Make Filing Taxes Easier
A business bank account keeps all of your income and expenses in one place, which makes it extremely easy to file your taxes. You can even connect your business bank account to an accounting app that will automatically tally your weekly, monthly, and annual income while breaking out and categorizing your expenses, helping you identify important deductions.
If you file quarterly taxes, having all of this information in one business bank account will make it easy to estimate how much you owe each quarter.
3. Avoid Being Audited
The best way to reduce your risk of being audited as a freelancer or business owner is to make sure your taxes are completely accurate and keep thorough records. Having a business bank account will help you do this.
If your business’s finances are mixed in with your personal bank account, you’re more likely to make a mistake on your taxes, and if you are audited, it’ll be difficult to provide proof of your claims to the IRS.
4. Reduce Your Personal Liability
If you don’t open a business bank account and instead use your personal bank account for business transactions, you can be held personally liable for the actions of your business. By mixing up your business and personal finances, it’s harder to prove to a court that your business is actually a separate entity.
On top of that, you risk any fraudulent activity on your personal bank account impacting your business’s well-being. It’s best to have a separate account in instances of theft so that the thief can’t drain both your personal and business funds at once.
5. Understand Your Business Cash Flow
Maintaining a sense of your business’s cash flow is crucial to making smart financial decisions. If you’re coming up short of where you thought you’d be each month, you might have trouble paying your bills on time and managing payroll. You may also be struggling to collect overdue invoices. On the other end, having a cash surplus means money that could be used to grow your business is just sitting around.
If you want to fix your business’s cash flow problems, one of the first steps is to open a business bank account. This account can then be connected to accounting software that helps you automate and monitor your cash flow.
6. Appear More Professional
Like getting a dedicated email address or business address, a business bank account can help you appear more professional. If you make payments from a personal account, it can look like your business isn’t a real business or like you just opened up shop.
Even if you did, submitting payments from a business bank account adds legitimacy to your business. Your business name, rather than your personal name, will appear on checks and other transactions.
7. Build a Business Banking Relationship
While a business bank account won’t help you build business credit, it can help you build a business banking relationship. As long as you maintain a positive account history, the relationship you build with your bank as a business owner can help you access financing in the future, from small business loans to equipment financing to business lines of credit.
Business credit cards are also useful for separating your business and personal finances, and the best business credit cards offer lucrative rewards. Leveraging a positive business banking relationship can help you get approved for your first business credit card, which will help you improve your business credit score.
Getting a business bank account is the first step to successfully managing your business’s finances. They’re easy to open, so there’s no reason not to get started today.