Do you really need a business bank account? These five reasons should convince you to go to the bank and open an account right away. Let’s explore why you should keep separate accounts.
While starting a new business is exciting, there’s a lot to get done. A bank account might not seem that important when you consider everything else on your checklist. If you want to be one of the 50% of small companies to survive into year five, then the first thing you need to do is open a company bank account.
Charles Dickens once said, “Never do tomorrow what you can do today.” In business, the way that you structure your finances will have a lasting impact on your ability to succeed.
There are many reasons why a business bank account should come first on your list. Here are five of the most compelling reasons to open a bank account in the name of your new business.
#1: Separate Finances Protect Your Assets
One of the top reasons that small businesses close is that business money is put to personal use. Mixing personal and business finances are often costly in more ways than one.
You might believe you’re saving time and bank fees by consolidating all of your earned income into one account – but the reality is that you’re setting yourself up for problems down the line. How can you tell if the money in your account is profit or leftover from another source?
Reason #1 is to reduce your personal liability and protect your personal assets.
By keeping your business and personal finances separate from each other, you can avoid future liability. If your business falls on hard times and has to close or goes bankrupt, your personal property remains safe. No one can take your private assets or damage your personal credit score.
The only business entities that are exempt from having a business account are sole proprietorships and partnerships. Since your company isn’t a separate legal entity, you aren’t required to have a business bank account. Even so, you may want to keep things separate, and many business owners do.
Separate finances simplify business growth, taxes, and essential business functions like getting a small loan. As a business owner, make it your first priority to open a business checking account!
#2: Keep Crystal Clear Accounts for Better Decision-Making
Running a small business is challenging even during the best of times. That’s why it’s so important to maintain accurate bookkeeping and accounting records. A single business can create thousands of transactions, and the complexity only grows with your success.
Smart entrepreneurs know that a dedicated business bank account makes your financial bookkeeping easier. You won’t have to spend hours and hours of your time picking out personal transactions during tax season, and your accountant won’t lose sleep over a confused, cluttered account.
Reason #2 is to keep crystal clear financial accounts so that you can make better business decisions.
When your books are in order, you are better positioned as an entrepreneur to make strong business decisions. Having accurate reports of your revenue will help you determine your growth strategy.
You can budget like a pro, invest when the time is right, and seize financial opportunities as they arise when you have a bank account for your business. It’s essential to maximize business performance.
#3: Make Taxes Easy to Get Right
Tax season can be a daunting time for small business owners. It’s easy to make mistakes when you blend your finances and have a single bank account. A lot can be missed or skipped over when your records aren’t clean and organized. Accurate portraits of your profit and loss statements are key to correctly filing taxes.
The IRS is very specific about how to claim business-related expenses. If you want to benefit from tax deductions and avoid late fees, then you need a dedicated account that correctly tracks income and expenses.
Reason #3 is that it simplifies taxes and makes things easier during tax season.
A business account is a critical element in your tax reporting system. It keeps your business transactions organized and it helps your accountant compile better records and reports. If your business is ever audited by the IRS, having a business checking account makes the process less challenging.
#4: Improve Your Credit Score and Get Business Loans
When you choose to commingle your business and personal finances, you make it difficult for your bank to see your company as a real business. Because of that, they may decide that your business isn’t eligible for a credit line or business loan.
Reason #4 is to improve your credit score and qualify for small business loans.
A business bank account is a way to build a relationship with your bank so that you can borrow money from them when needed. Having a line of credit can improve your business’ credit score and can result in the bank seeing your business as a good candidate for a larger loan later on.
Not only do banks check your company credit, but they also review your personal credit score. Separate accounts ensure that your business and personal credit never get mixed up. It’s easier to build strong business credit and establish a healthy relationship with your chosen bank this way. This increases your chance of getting a loan in the future.
#5: Maintain Professionalism and Gain More Customers
Trust and reliability are two must-haves as a small business. A company account shows the world that you handle professionalism and customer service with integrity. You need a dedicated account to avoid eroding customer faith when it’s time to pay for your goods and services.
Reason #5 is that they give you an air of professionalism and business credibility.
A business account lets you accept different payment methods like card transactions, point of sale system payments, or mobile app payments from your customers. The average consumer expects these facilities, and you should be eager to deliver the payment security they expect.
With a professional image, everyone will treat you seriously and this means better partners, suppliers, and customers. You will build trust with the people around you when you operate like the business you are, and not as an individual hobbyist.
Your company bank account is the start of a better financial future for yourself and your company. All you need to open an account is your identification documents, social security number, and your business license and permits. After that, it’s a matter of basic financial tracking and responsibility.
To recap, the five main reasons to get an account for your company are – to protect your personal assets, to make better business decisions, to simplify taxes, to qualify for loans, and to gain business credibility in the market.
Give your business the right head start and open a dedicated business bank account today.