Opening a business comes with many responsibilities. You need to get a license, pick the location for the business, hire employees, etc. Amidst all these, opening a bank account for your business can seem less important. But no matter how many things are on your plate, having a business bank account is a good idea. Don’t ignore it, even if your business is a small side hustle. Here are the reasons why.
Separate Your Personal and Business Finances
How can you track your business and personal expenses when you only use one bank account for both? You can’t tell how much money you’re getting from the business and how much you’re spending. Brad Kern recommends separating these two accounts to get a clear picture of your business flow. This way, you can track growth and risks and budget appropriately without worrying about risking your personal finances.
It Makes Your Business Look Professional
Asking clients to write checks to your personal account doesn’t look very professional. In fact, it can ruin your image. And when you’ve struggled to build a brand image from scratch, you don’t want anything to jeopardize that. Plus, writing checks from a personal account doesn’t exactly convey strength or confidence to your customers and clients. A business account shows that you’re ready for work. When it’s your business name appears on checks or other payment methods, you show customers and clients that you’re here to stay.
Makes Filing Taxes Much Easier
Separating your business and personal transactions is important for filing taxes. As soon as you get an Employer Identification Number (EIN), you must start filing your business’s taxes. You’ll also need this number when opening a business account and hiring employees. The IRS expects you to track business accounts, which you can only do when you have a separate business account. During the tax season, filing will be easier as you know how much profit you’ve made or the various business expenses.
Helps You Prepare for Growth
At one point, you’ll want to take a loan. It’s a necessary step when you want to expand operations, hire more people, purchase equipment or boost your cash flow. Opening a business account is the first step in creating a relationship with your banker. It will help you build your credit score, which will come in handy when you’re seeking a loan.
Protect Yourself From Business Liability
Establishing your business as a limited liability company or corporation protects your assets. If at one point, your business runs into financial challenges and you can’t pay debts, creditors can’t come for personal property. But when you mix business and personal accounts, then your liability protection is basically nil. That means you’ll be held personally liable for debts that the business incurred. Based on this, you might lose your assets like your car and home. To avoid such a case, have a separate bank account for your business.
Opening a business account should be among your priorities when starting a company. It doesn’t matter whether you’re a freelancer or your business is a hobby. Separating those accounts gives you more control over both personal and business finances.