When starting your own business, especially at the very beginning, it may seem like an unnecessary amount of work to separate your business and personal finances. If you’re only putting a little money into the business or want to spend the profit you’re making, it can be tempting to simply send it to your current bank account instead of dealing with separate accounts and details. However, if you don’t separate your personal finances from your business, you can encounter serious consequences down the line.
Establishes your business
Whether you’re simply opening up a separate bank account to manage the money as you first start your business or if you’re opening multiple business accounts and getting business credit cards, creating separate destinations for business profit and funds solidifies your company. Having separate accounts shows that you’re serious about starting this business and working hard toward success. Have clients and customers write checks to the business and label accounts with the business’s name. It also makes it easier to have other people, such as an accountant or assistant, access the business account (and also prevents them from accessing your personal financial accounts).
Builds business credit
If you’re going to take out loans and open credit cards using your business name, it’s important to begin building your business credit. You can acquire loans without fantastic business credit, but it’s still a good part of business to work on. As you start your company, it’s vital that you develop a footprint and identity of your business. You want to show a paper trail of your business’s financial accounts.
Keeps personal assets separate
One of the most important reasons to keep your personal and business finances separate is because it prevents confusion between what is the business’s and what’s yours. If you ever sell the company or have debts to pay, the last issue you want is unraveling your personal assets from those of the business. Keeping your financial assets completely separate helps avoid stressful confusion if your company ever changes ownership or you decide to pursue other opportunities.
It helps with taxes
Keeping personal finances separate from your business makes tax season much, much easier. You’ll be able to clearly claim the tax write-offs you deserve for your company, which is a huge help when working on improving cash flow for your business. It’s also important to keep these accounts separate in case you’re audited. You don’t want the IRS to find a mistake that can lead to serious consequences for your finances. If you don’t keep them separate, when tax season comes around, it’ll be a huge headache trying to remember what expense was for your business and what was a personal expense.