If you’re a small business just starting out, you’ve probably had a lot to think about and consider. One of the major concerns of any business (new or existing) is its finances. How do we charge our customers? How do we secure the funds we need? What administration is required to pay our taxes? You also might wonder why you should set up a separate bank account when just starting out, or even if you feel your current operations are outgrowing your personal account’s status.
The answer is a resounding ‘Yes.’ Whenever you start a business, one of the first things you should do is to open a dedicated bank account. Using a personal account can create confusion, especially when you’re managing taxes and keeping track of your finances. Here are five reasons why you should keep your business account completely separate from your personal accounts.
Reason #1: Professionalism
You will need a bank to accept card transactions on your sales. If you have a retail business, you’ll also need one for your POS system. Having an account in your business name helps your business look more professional to customers and clients. It also gives your suppliers and customers the impression that you are a trustworthy, legitimate, and serious business. If you do not have your internal processes and systems in order, why should a customer trust that you can serve them as they expect?
Reason #2: Track Your Business’s Transactions Easier
Using your own debit card or personal credit card makes everything more complicated than it should be. It becomes challenging to distinguish transactions on your bank statements – “was that me or the business?”
With a business account, you save time, and it’s simpler to track your business expenses, as well as income. You don’t have to go back to your receipts from months ago to separate your business and personal expenses; you can clearly identify which account is which. Your bookkeeping, therefore, becomes much more organised and streamlined because you’re keeping your records accurate. It also gets far more comfortable to catch up on your year-end bookkeeping faster and more efficiently, especially when your credit card expenses link to your accounting system allowing easy to to manage file uploads.
Reason #3: Protect Your Personal Identity
Your account will naturally receive and honour more significant transactions as your business grows in scale. With a personal account you may also, unfortunately, be at risk of identity theft and fraudulent activities. If you have a separate business account, you can limit the loss to that account alone. Your personal savings will be safe when a crisis like this strikes. You may also become increasingly prone to cyberattacks. Hackers can look through your personal information like your address and other details associated with your account and registration documents.
Reason #4: File Accurate Tax Returns
Business owners should always be present and engaged during the quarterly (and yearly) tax season. It gets incredibly complicated when business and personal receipts get mixed together. This can lead you to situations where you and your employees spend otherwise productive hours separating your personal expenses from your business expenses, as well as there being a higher chance for missed tax deductions on your business expenses.
Simplify the preparation process. Save time, maintain and produce efficient and accurate tax returns by operating a separate business account. Having a business bank account also streamlines your record-keeping because it becomes a lot easier to identify taxable benefits and deductions.
Reason #5: To Secure Finance
You have to open a business account to get business finance and further expand your business. It also becomes easy to show potential lenders your business’ entire financial records. Separating your business account and personal account early saves you much work, compared to leaving it for later when your business is larger and more established – it helps you build a history.
Fantastic cash flow solutions for growing businesses, such as accounts receivable funding, are only an option for established operators with sufficient business history of revenue generation. Facilities like accounts receivable funding allow you to use your current outstanding accounts as security to turn your unpaid invoices into cash within a day, instead of what usually takes 45 to 90 days to hit your bank account. Instead of taking out debt, use your history as a business to secure funding from assets you’re already building with your customers as your business grows.
TIM Finance helps small to medium businesses source the funds they need to support their current operations, meet their expenses, and invest in their growth. Get the cash you need and make TIM Finance your partner for flexible business financing today.