Why Keep Small Business and Personal Accounts Separate?
Even though most individuals claim they know to never mix their personal expenses with the expenses of their small business, it seems to be a common issue. Many think it is okay to take funds out of one to put into the other, as long as they put the money back eventually. In the beginning it will be difficult to keep your expenses separate, but getting into the habit of not mixing them early on will protect both you and your business. Here are a few things to think about before you decide to share a bank account with your small business.
Lack of corporate veil.
Keeping finances separate substantiates the corporate veil of your small business. It shows that the company is seen as its own entity and encourages you not to mix personal and business funds in the first place. Separating your accounts is the first step to giving your small business an identity of its own, and will protect you and your small business in the long run.
When your bookkeeping procedures are disorganized, you will constantly feel stressed about needing to address the issue. Keeping your small business finances separate, means improved bookkeeping procedures, and improved bookkeeping procedures means less stress.
Separate checkbooks provide the opportunity for better budgeting, meaning you can make more knowledgeable decisions for your small business. It is difficult to be a successful small business owner if you have inaccurate records to base your decisions off of. Any financial decision you make for your small business should be taken seriously, and mixing expenses will just make it even more difficult.
Small business owners are entitled to many different tax deductions that individuals are not. If your personal and business finances are mixed together, it can be difficult to review all of your transactions and determine which ones were for your small business. It is not uncommon for this to lead to missing out on deductions, meaning you will pay more the IRS than you would actually owe.
By mixing your business and personal finances together, you risk the chance of misusing your funds. If your small business is not doing well, you risk taking out personal funds. If you’re struggling to pay personal expenses, you risk utilizing your business finances.
Mixing personal and business funds make it far more difficult to have accurate bookkeeping. Any bookkeeper you hire will have a difficult time figuring out what your exact profits and expenses are for your small business. Giving your bookkeeper work that is more time consuming and more difficult to interpret will be sure to raise your bill.
Lack of professionalism.
At the end of the day, clients will only take your small business as serious as you do. Writing checks in your personal name gives off the idea that your business is part-time. Take a little extra time to open a business account. Search around for the best deal, as small business banking varies in features and fees. The amount of money you spend on opening and maintaining a bank account for your small business will be far less than the fees and penalties you can get from the IRS. Remember: run your business as a business.
Bookkeeping Help in Wilmington NC
BOSS is a growing firm of local business advisers who are committed to providing responsive service, strategic thinking, and competitive pricing to our clients. If you’d like help or to learn more about running a small business in Wilmington, NC give us a call at (910) 338-1198, stop by our new office located at 3901 Oleander Drive, Suite G in Wilmington, or click here to fill out our online contact form. We look forward to hearing from you!