Why You Should Separate Business and Personal Accounts

From day one, business owners should have a separate bank account that they deposit their income and pay their business expenses. It can become confusing to pay expenses from your personal account and then try to work out the different transactions at the end of the month. Having a designated business account can make it easier, faster and more accurate to keep track of, especially during tax season. It’s also useful to designate a business-only credit card for any online business purchases.

But there are other reasons apart from the legal requirements to separate personal and business expenses.

Easier to check how you’re doing

Separating personal and business accounts helps get a clearer picture of your finances. Imagine trying to sort through a list of all your personal expenses (and differentiate between the coffees that were work related and those that weren’t). This is not only true for day-to-day transactions but also when you’re with your accountant working out your overall financial position. Drawing a clear line between the two separates your personal money from funds that go towards running your business.

Lower accounting or bookkeeping fees

It’s much easier for your financial adviser to see what’s happening at tax time. The less time they spend sorting through all your records, the less you may be charged.

Tax compliance

Most businesses incur expenses when generating income and often these can be deducted from the income when calculating business income tax.

Having a picture of your business finances will make doing your taxes easier when the time comes to complete your returns. If you don’t separate your business and personal spending, you could spend hours going through bank statements trying to identify each business transaction. Not only is this frustrating and not a great use of your time, it means you may also miss valid business expenses hidden in your personal bank statements and this means you could lose out on possible tax deductions.

Business credibility

If you transact from your personal account, anyone paying you will enter into the account that has your name as the description. They will know it’s your personal account and if you deal with other businesses, they too will know. Having a business account from which you make payments, as well as lodge payments into, will help your business appear more professional and established to your suppliers and customers. It’s also an opportunity to get your business name out there and hopefully, as a result, build trust and awareness of your brand.

Seamless business transactions

If you have a business account you can link other accounts like a business credit card or a payment mobile solution, making for more streamlined transactions.

As your business grows you may find you have to open a business account in order to get financing and further expand. If this is the case, separating your personal and business accounts now will help you to easily provide any lender with full financial records of your business.

Other reasons

Consider using online accounting software. These tools integrate with your banking and automatically send information back to your accounting system. This ultimately saves you time by making monthly reconciliations quick and efficient. You could also open a separate savings account and regularly deposit money to help with cash flow when your tax liabilities are due or to build up a cash reserve.

This article is provided for informational purposes only. Consult your tax professional for advice on your individual situation.