There are certain benchmarks that a business owner must meet in order to be able to conduct their affairs on a serious, professional level. Of course, establishing your legal business entity (sole proprietorship, partnership, LLC, corporation, etc) and getting your tax id / EIN are at the top of that list. Just as important, yet not practiced by a surprising number of entrepreneurs, is the establishment of a separate business checking account, dedicated solely to transactions revolving around your business.
A startling amount of business owners use their personal checking account for their business transactions, causing headaches, confusion and often times trouble for all involved. This is referred to as commingling funds, and it is a grave mistake for a business to make. There are several huge benefits to opening a separate bank account and keeping your business and personal expenses completely separate, with no clear drawbacks. Here are several reasons, aside from the obvious headaches caused by commingling funds, why establishing a separate bank account is not only highly recommended, but an absolute necessity.
Keeping an accurate tally of your income and expenses / Monitors your business’ profitability – Since this is a separate account set up for your business only, the monthly statement can outline in a very easy to understand format what your business’s income was in comparison to your expenses for that month. You would be able to tell what your net profit for that month is by subtracting your expenses from your income.
This statement is obviously important and in conjunction with your bookkeeper keeping your business balance sheet, income statement (profit & loss) and statement of cash flows, is an invaluable tool for a business. Without the separation of your business and personal checking accounts, it would be much more difficult to get an accurate determination of your business’s profitability.
Increases your ability to receive payments – Opening a separate business checking account opens your business’s ability to accept credit and debit payments either through a merchant account or through a service like Stripe. This opens up your business to be able to serve a larger number of clients and to accept payments in a more varied amount of ways.
It makes your business “official” – If you want to establish solid professional relationships, it’s very important to “look the part”. Opening a separate business checking account makes you look like a professional entity ready to seriously “do business”. It also protects your personal information as only your business information would be printed on the physical checks as opposed to your personal account.
These are just a few of the more obvious benefits to making this simple yet crucial step. If you are a new business owner and you have yet to make the step to establish your business checking account, I implore you to make the move to do so as soon as possible. Your bookkeeper, accountant, and/or tax professional will thank you, and you are sure to feel the benefits at the end of the month when reviewing your business’s performance as well as during tax time.
Please feel free to check out the other blog postings, and if you are in the market for an experienced, professional bookkeeper.email us at email@example.com and book a free consultation today!
Heru Bookkeeping LLC