Did you know that solopreneurs make up about 73% of small businesses in the United States? Pretty often, freelancers who are on their own believe that they don’t need to follow general business advice because their situation is unique, but the opposite is actually true!
When it comes to advice like separating your personal and business finances, solo-preneurs are the rule, not the exception. The reason why bookkeeping professionals recommend separating business and personal finances is actually because so many solopreneurs have made the mistake of mixing the two.
Today, I’ll explain why your small business needs a business bank account, how it protects your business, and how to use it to your advantage!
Why Do I Need a Business Bank Account?’
Mixing business and personal finances has the potential to create a huge headache for business owners in the case of any legal disputes or tax audits. It also makes filing taxes really, really hard because you will need to distinguish between business and personal transactions. The more your business grows, the more challenging this situation will become, and it could result in missed tax deadlines, penalties for late payments, poor business decision making, and more. Here are some reasons to open your business bank account today.
Protect Your Personal Assets Against Business Liability
If you run a small business, your biggest priority should be to protect your personal assets. Creating a barrier between your business and personal finances will protect you in the case of any legal disputes by creating a clear line of separation between your business and personal affairs. If you use the same account to pay for your personal finances, you’re opening yourself up to risk by making it very unclear where your business starts and ends.
If your business is sued for any reason and your finances are all mixed up, your personal assets could be vulnerable. While this scenario is unlikely and pretty extreme, it’s important to know that the risk is real. The good news is that you can avoid it by setting up a dedicated business bank account and practicing good stewardship of your accounts.
Make Tax Season a Breeze
One of the most common reasons for late filing is poor bookkeeping, and not having a dedicated business bank account makes good bookkeeping pretty much impossible. If you’re DIY-ing your books or just sending your receipts to your tax pro each year, it’s even more important to make sure that your bank account clearly shows your income and expenses. Having a dedicated business bank account will help you do just that! By ensuring that all income and expenses are accounted for in one space, you will make tax season easy, be far less vulnerable to audits, and make it easy to determine what your quarterly tax payments should be throughout the year.
Utilize Your Financial Data
Your analysis is only as good as your data! Mixing business and personal finances reduces your decision making power by making it really hard to tell what’s actually going on in your business. You need to know how your money is made and be able to strategize based on your financial data. Setting up a business bank account can provide you with a clearer picture of your business finances and simplify the process of creating key financial statements for your business. If you need help learning how to do this or making sense of your financial data, hiring a bookkeeper can help!
Prepare Your Business for the Unexpected
Unexpected events can happen in your business, and not all of them are a disaster. Whether your unexpected event is a decline in cash flow or the potential for an exciting investment opportunity, having easily accessible financial information is extremely important. By having your own dedicated business bank account, you’ll be ready to answer any questions about your business and provide easy and clear documentation. This could be the difference between securing a key investor, making a pivot that could save your business, or even selling your business to someone else in the future.
If you’re reading this blog, let it be your sign to set up a business bank account today! Remember that separating your finances isn’t just a suggestion - it’s essential to your company’s overall financial health.
Want help optimizing your business finances? Schedule a free discovery call today!