Most business owners make the mistake of mixing their personal finances with business finances. Unfortunately, most don’t realize that it is a mistake. After all, if they own the business, the money generated is theirs too. And, that is where they go wrong. Keeping your business and personal finances commingled might seem an easier option, but it can prove inefficient down the road. If you are like such entrepreneurs, keep in mind that there are many benefits to realize by keeping the finances separate. In this article, we look at the importance of keeping both accounts separated.
Personal assets protection
No business owner likes anticipating bad times. But, the reality of business is that such times are inevitable. When putting your personal finances together with business finances, it is good to ask yourself what happens to your personal assets when the need to dissolve the business comes. If you find yourself in legal battles with your creditors, are your personal assets safe?
The problem with mixing your finances is that it becomes difficult to tell between your personal and business income. This can cause your personal assets to become a point of interest in a court of law. You might find your personal assets and investments being used to pay your business creditors. Keeping your personal finances separate protects you from legal liability.
Easy to keep an eye on cash flow
Understanding how your business is doing financially is important if you are to succeed in business. It is vital to stay on top of your cash flow to ensure that you are able to pay for your operating costs. Monitoring your cash flow also helps you to forecast future cash needs and plan accordingly. However, that can get difficult if you have both your personal and business finances in one account.
Consider an online banking solution for your business. Having an online bank account gives you a traditional business banking way out. You are no longer restricted to traditional banking hours and you don’t have to endure long queues at the bank. You have access to your account at any given time, which makes it easy to track income and expenditure. You can also transfer money and make investments from the comfort of your home.
Improves your professional outlook
Maintaining a good professional image enhances your efforts in nurturing good business relationships with your suppliers and target customers. You want the people that you do business with to take you seriously and see your business as credible. But, there is nothing professional about having your clients write checks with your personal name instead of the business name.
Having a distinct bank account for your business can help you establish your business identity. Even if you are running a sole proprietorship, consider registering a Doing Business to give your business a distinctive name as many sites increase performance through followers or audience. Let the bank account and business documents be in that name.
Makes tax calculation easier
Business taxes are another area that you don’t want to mess up. Miscalculating taxes can land you hefty fines and penalties. You want to make sure that you are getting everything right. Having a separate account for your business transactions makes it easy to track income and expenditure for tax purposes. It also makes it easy to distinguish business expenses from tax deductions.
In addition, if tax authorities audit your business, you want to be sure that you can validate business expenses. If you are unable to, you are likely to subject your personal records to auditing as well.
Easy to access financing
Business financing is necessary for growing your business to the next level. However, your chances of securing business loans depend on the ability of your business to pay back the loans. When the time comes that you want to apply for financing for your business, you want to be sure that lenders can tell your business’s ability to pay the loan. Keeping business and personal accounts together can make this difficult. But, when they are separate, lenders can be able to measure your business’s financial status accurately.
Conclusion
Running a single account for both personal and business finances might appear easier for some entrepreneurs, especially in the infant stages. However, it makes everything complicated as the business grows. Moreover, having separate accounts simplifies taxation, business financing, and cash flow. It also improves your professionalism and protects your personal assets.
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