For many startups and small businesses, it can be easier to manage finances via a personal bank account. Normally, when companies are launched, that’s how founders start off dealing with finances, and many simply never make the switch to a professional account.
While large companies normally make the switch to business bank accounts as they begin to grow, there are also many smaller startups that never make the switch. In these cases, business owners simply don’t see the necessity of creating a whole new account because they don’t require the benefits that business accounts provide.
However, becoming eligible for business loans and having higher limits aren’t the only pros of separating personal and business finances.
Advantages of Separating Your Personal and Business Finances
There are actually plenty of reasons that it can be a good idea to separate your personal and business finances, some of which are practical and others that are financial, among other things.
Track Business Finances More Easily
By separating your personal funds from your business funds, it’ll be way easier to keep track of your finances on both sides.
If everything goes through a single account, you’ll have to constantly keep track of payments made and payments received, separating where they come and where they’re going and keeping meticulous records.
That means that even if your business is small and you don’t have to deal with a lot of financial comings and goings, it’s still going to be more work to have a single account as opposed to two separate ones.
Make Business Accounting More Efficient
Not only will you save time by having separate finances, you’ll also be more efficient. It’ll be far easier, quicker and more accurate to keep your finances separate. You’ll also be able to track and find information more quickly and easily.
Tax Deductions
Businesses can potentially benefit from a great deal of tax write-offs and deductions. For instance, if you have a small business and work from home, you may be eligible for deductions based on costs incurred by your home office.
If your business’s money is moving through your personal bank account, you won’t be eligible to reap the rewards of some business-related tax benefits.
Protecting Assets from Legal Liability
Having your personal and business finances in one place can make you vulnerable in the case of potential legal issues.
While it may be easier to have everything in one place, if something bad happens in the future and either you or your business gets in trouble with the law, it means that all your finances are vulnerable.
If the business is struggling, your personal funds may get caught in the crossfire, and the same goes the other way around. By separating your finances, you can protect yourself on both counts and avoid unnecessary legal liability.
Project a Professional Image
In the most basic sense, having an official business bank account rather than just managing your funds through your own personal bank account can project a more professional image. It’ll make your business seem more serious as well as give it more credibility.
Business-Specific Financial Services
Business bank accounts offer account holders access to services that aren’t offered to those using personal bank accounts.
This includes things like business lines of credit, business loans, higher limits and more, all of which can be incredibly helpful for a business. It can also keep a company out of financial trouble.
Protect Your Personal Savings
In theory, business owners certainly can successfully keep finances organised while keeping them in a single personal account. However, realistically, it can be tempting to use personal funds to bail out your business if things aren’t going well.
By keeping your finances separate, you’ll be able to protect your personal savings and stop yourself from risking your own financial position.
Ready for Sale
If you decide you want to sell your business, it’ll be far quicker, easier and more efficient to get the company prepped and ready for sale if you already have your funds organised in a professional bank account.
