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Reasons not to mix personal and business banking
Venturing out into the world of entrepreneurship can be risky and adventurous. Many new business owners try to reduce the risk by starting a business part-time while retaining a full-time income. This can be a great approach to starting a company, but it is important to run the business as a business. One of the basics of small business banking is to set-up a business bank account. This fundamental business function can often be lost with new and part-time business owners who think they can co-mingle funds. Using a personal bank account for small business banking is common among part-time business like multi-level marketing and self-employed sole-proprietors such as realtors and other types of consultants.
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Frequently, some business owners try to process business transactions through their personal bank accounts in an effort to reduce expenses and bank fees and they even think they are limiting paperwork. Unfortunately all they are really doing is creating more potential problems for the business in the future.There are reasons not to mix your personal and business banking.Sticking to these rules will not only help you build your business but will help its success in the future.Here are just some of the reason not to mix personal and small business banking-
- Hobby businesses: Government rules clearly stipulate that only businesses can deduct business expenses. If your business can look like a hobby, a personal bank account for business creates a harder time convincing the government you are operating a business. The simple act of opening a business account can take care of this problem.
- It can be a tax time nightmare: When it comes time to declare income and expenses from the business, you will have to separate personal transactions from business transactions. This can really be a nightmare and time burden going through all transactions and figuring out business from personal.
- Mixing the accounts leaves a limited audit trail: While it is not a requirement of the government that you have a separate small business banking account and record keeping method, it is required that all records be accurate, complete, permanent and showing a clear record of income and deductions. Providing a separate business statement and record will provide a clear audit trail.
- Mixing business and personal banking can lead to missed deductions: Co-mingling your small business banking with personal creates a mess of transactions on your account statement that have to constantly be sorted out. It is extremely easy to overlook or miss deductions that you may be entitled to. Whether you or an accountant will be preparing the tax return, messy record keeping can cost you lots more in time, money, and possible missed deductions than the costs of opening and maintaining business banking accounts.
- Mixing business and personal banking shows a lack of professionalism: If you have clients who write checks to you, check writing in your personal name as opposed to business can convey that your company is only a part-time venture. Even if your business is part-time, you should take it seriously and your clients will too.
You should take the time to open a small business banking account to simplify your record keeping and life. Be sure to shop around for the best deal. Small business banking varies widely in fees and features. Keep in mind that the costs of a business account are far less than the benefits to your business. Remember that fees are partly tax deductible as an expense. Don't forget to consider that your business may grow and opening a business account with a bank earlier can help with required financing in the future.
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