Whether you’ve just barely started a new business or you’ve been in business for several years, a business bank account is vital to both your sanity and survival.
In the early stages, you may not feel like it’s necessary and that you can easily separate what needs to be tracked. But if you intend to make your business a long-term endeavor, here’s why you will most certainly need to create a business bank account.
If you plan to file taxes as a business and your bank accounts are not yet separate, buckle up. You’re going to have to separate every transaction and place it under business or personal. It will save you a lot of time and effort by opening a business bank account now instead of wishing you had on tax day.
Most businesses have multiple items they intend to deduct come tax season. But if your personal and business bank accounts are one and the same, good luck convincing Uncle Sam of that. By not separating your expenses, your business runs the very real risk of looking more like a nice hobby rather than a full-fledged business.
Additionally, when all your personal and business transactions are in the same place, you run a different risk: missing deductions entirely. With so many transactions, many of them are going to blend together and some will get forgotten or lost. You don’t want to miss out on deductions you could have written off, do you?
No one likes the prospect of an audit from the IRS. If you’re not separating your personal and business bank accounts, you are inviting an audit. The IRS is very serious about classifying legitimate businesses from “hobby businesses”. Be aware of what factors the IRS will be looking for to make sure you don’t accidentally bring your business an unwanted audit.
It’s required (for some)
Set aside whether or not it’s convenient for a moment. For certain business types, it’s actually a requirement. If your business is incorporated, you are required to have separate accounts. If you are caught without a separate business bank account, you could be setting your business up for disaster.
Do you want to be a reputable business? Think of how a business may be perceived if it issues personal checks instead of business checks. For some, that may even be a red flag and lead them to believe you’re not a real business. By having a business bank account, you can issue checks in the business’s name instead of your own and improve your credibility as a business entity.
As a small business owner, you have enough on your plate to deal with on a daily basis. By separating your personal and business bank accounts, it is one less thing you have to worry about. No more trying to sort through and decide (or remember) which transaction goes into which bucket. If you haven’t already, first take the time to become an official business. Then, do everything you can to completely separate your personal financials from business financials. It may be a headache right now, but later you will be glad you did it.