When you’re venturing into a new business, you need to do many things to get the operations started. However, many entrepreneurs often overlook the importance of setting up a business checking account. It’s a common misconception that managing their business banking only comes into play once they start making serious money.
If you’re the sole owner of a business, you can use a personal checking account or open a separate account for your financial transactions. But it’s always a smart move to secure a checking account for your business, even if you’re not legally required to do so. It comes with numerous advantages highlighted below.
Provides Protection
It’s always wise to separate your personal and business transactions for liability protection. Else, creditors and the Internal Revenue Service (IRS) can go after your personal assets to collect for your business’s loans. The same applies to your business assets if you have personal debts.
But securing a business checking account keeps personal funds separate from your business assets. This way, you can protect both personal and business accounts. Note that before you can set up an account for your business, you need to register your DBA (doing business as) with the appropriate government agency.
Streamlines Accounting
When funds are moving in and out of a single dedicated account, it’s easier to monitor your business cash flow. On the other hand, mixing personal and business transactions makes it more difficult to organize bank statements and determine important business financials.
Remember that you need to keep all receipts and invoices to match your financial statement and checkbook. But having a separate business checking account helps keep your books streamlined and in order.
Makes Tax Preparation Easier
Businesses are required to file a tax return every year. It won’t be a problem if your personal and business funds are not linked to one account. Otherwise, it will be harder to file your taxes accurately. Bear in mind that you could face IRS penalties if anything in your tax return is not accurate.
Having a dedicated business account makes tax preparation easier. You don’t have to sort through personal and business transactions to identify and verify deductible expenses. With a separate account statement, you can effortlessly support your deductions and complete your tax return.
Allows Multiple Business Account Signers
If you’re the only person with a signatory power for your business account, you need to approve every check, payment, deposit, and withdrawal. Such daily financial transactions may consume more of your time as your business grows. But having a separate business checking account allows you to add an employee as an authorized signer.
That means you can focus more on important management work while your employee can do some of your administrative banking duties. But be careful of who you approve when writing a check, signing for debit transactions, or making deposits for your business.
Enables Credit Acceptance System
Accepting card payments is crucial for the success of your business since many customers now prefer such methods to paying in cash. But unless you use an expensive payment service provider, you can’t do it with a personal checking account.
Note that when you only accept cash payment, you limit your customer pool and potential sales. So, if you want to serve a large number of customers, it’s best to set up a credit acceptance system or merchant account by securing a separate business checking account.
Helps Establish Credit History
There will be a time when you’ll need to acquire financing to expand your business, and a business checking account can help establish its credit record. Keep in mind that having a history of dedicated business transactions is essential for growth. In addition, it can help you build good relationships with a bank or financial organization, giving you an advantage when applying for a loan or accessing other business services like payroll or taxes.
Adds Credibility To Your Business
Maintaining a professional image is critical when you’re running a business. But that is hard to do if you write checks from a personal checking account to purchase inventory for your business. Providing your clients and customers with a dedicated business checking account gives more credibility and professionalism to your business.
Note that clients and potential customers will be more comfortable and confident to do business with you when payments and transactions are undertaken through your business account.
Conclusion
As a business owner, protecting both your business and personal finances is extremely important. If you don’t want to encounter unnecessary problems in the future, it’s best to secure a separate business checking account when you start your business. But make sure to do some research as banks have different limitations and benefits that can affect your business’s financial health.
