Many small business owners fund their startup using their personal savings. It’s not uncommon for these people to use their own account and credit cards even as the business continues to grow. However, it is advised that business owners should open a separate account for their company for the following reasons.
Create a Professional Image
Every successful business has a reputation they’ve built up through years of hard work. With a business account, customers can feel secure transacting with you. Many people are wary of writing checks or making payments to an individual as opposed to a business.
Build Business Credit
As a business owner, it’s important to learn about business credit, which financial institutions use to determine how capable you are of repaying debts on time. Having good business credit opens plenty of opportunities to improve cash flow as your chances of being approved for loans are higher.
Protect Personal Assets
Combining personal and business assets are only helpful at the onset. Continuing to use one account for all makes you personally responsible for any debt the business incurs. If judicial courts find it difficult to separate your personal and business assets, the former might be seized to pay off your debts.
Survive Tax Season
Determining how much taxes your business needs to pay depends on how organized the books are. When bookkeeping is done properly, you can opt to apply for a few business expenses that can be deducted as mandated by law. With a business bank account, you can rest assured all business earnings and transactions are in one place. In addition, this type of account can neatly organize your financial decisions into monthly transactions.
Better Budgeting and Forecasting
Mixing personal and business finances may seem convenient at first, but doing so can result in penalties from the IRS and other tax complications. Treat your accounts independently, so your spending habits as an individual and corporation can be easily tracked.
Keeping your personal and business accounts separate is vital as an entrepreneur. In addition, the business should conduct everything using the name of the company, including proposals, contracts, invoices, sales receipts, and all financial documents.
Learn how to track your business’ daily expenses here.