If you're like most business owners, you probably have a personal checking account and maybe even a business checking account. And you'll need to set up additional accounts for each business you own or run.
Because traditional financial institutions often only offer one type of business banking account, having business accounts for each of your different ventures can get confusing. So, in this article, we're going to explain the importance of separate accounts to keep your personal and professional lives nice and clarified, so you can make informed choices about the way you bank.
3 reasons to separate personal and business bank accounts
Having separate accounts keeps your finances organized, and protects your personal assets from paying off debts if something goes wrong with your business. It makes everything from banking to record-keeping, liability protection to taxation benefits easier, more secure, and more efficient.
Laine Redpath
#1. Reduce your personal liability risk
Nobody likes to think about their business failing, but the reality is that nearly 20% of businesses by their second year, and that figure rises to nearly half by their fifth year.
Having a business account helps to keep your personal and company finances siloed, which means your assets are more protected in the event of insolvency.
Even so, lots of entrepreneurs opt to use their personal accounts for their business operations. Personal accounts are often more flexible than business accounts, have fewer rules around spending, and tend to be cheaper because they don't come with a business account's bells and whistles.
#2. Record-keeping
When you're using your personal account for your business, keeping track of your company transactions gets tricky.
By separating your accounts, you know exactly how much money your business has to play with, which makes budgeting easy and record-keeping clean. Don't forget that you should keep receipts for all your business incomings and outgoings - even if it's just something small like a cup of coffee or a subscription to a piece of software - so that you've got accurate records when tax season swings around.
#3. Tax benefits
Beyond just easy record-keeping, having a separate business account actually opens the door to tax benefits you might otherwise miss out on.
If you have a business bank account, it's way easier to class yourself as a sole trader. This means that any income from your business is taxed on your personal income tax return. You can then deduct all your expenses against this income, including things like the costs of supplies and materials, the interest paid on your business loans, and the equipment you use day-to-day.
Sinan Elver
In short, have a business bank account offer benefits that'll help you manage your money more efficiently, and make it easy to stay on top of your finances.
If you don't already have separate accounts set up for your business and personal finances, what are you waiting for? Explore wamo's solutions today.
