Top 5 Reasons to Keep Your Business & Personal Bank Accounts Separate

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Top 5 Reasons to Keep Your Business & Personal Bank Accounts Separate
05 Aug, 2022
Maintaining accurate financial records is crucial when running a business. One of the simplest yet easily missed things is setting up your accounts correctly from the start.  Depending on the structure of your business, you may be required to keep business funds in a separate account. If you are a sole proprietor, you may not be required to keep a separate account at some point; however, if your business is organized as a partnership or corporation, you must. Continue reading to discover the most compelling reasons to open a business account. Also Read: Top 10 Bookkeeping Tips For Small Businesses
  1. Track your business cashflow with ease
Keeping your business and personal finances separate enables you to manage and respond to your cash flow situation efficiently. With a separate business account, tracking & management of funds becomes efficient as it assists you to better understand business performance and forecast cash flow for the coming months/quarters. Plus, the more organized your financial records are, the easier it will be to access funding from a lender or credit provider.
  1. Make your accounting more efficient
When tax season arrives, you would want to ensure that you did not miss any legitimate business deductions. If your business and personal expense accounts are the same, reviewing every transaction on your bank statements can be stressful and time-consuming, increasing the likelihood of omissions. Keeping your personal and business expenses separate not only simplifies the process but also helps avoid claiming a personal expense as a business expense. It also makes record-keeping easier and aids in the identification of taxable benefits and deductions.
  1. Strong Business Credit Score 
Although clubbing personal and business finances may seem easier to maintain at first, it will lead to complications eventually. Keeping a separate business account aids in the development of your company's credit rating. Your business credit score, like your personal credit score, reflects the creditworthiness of your company. A good credit score helps you get better terms on business loans and lowers the cost of business insurance.
  1. Protect your assets from legal liability
Separating your business assets from your personal finances can help protect your assets in the event of legal action. If you fail to keep your business and personal affairs distinct, courts may decide to "pierce the corporate veil," which provides limited liability. When deciding on the type of business entity to establish, keep in mind that some offer more protection than others. Therefore, it is advisable to consult an experienced CPA while incorporating your business. Furthermore, please ensure that any business operating agreements such as lease agreements and supplier contracts have your business name and account information mentioned on them. 
  1. Establish a business image and credibility
Opening a business account is a critical first step if you want your organization to be taken seriously. Making and accepting payments into a business account contributes to a more proficient and trustworthy image. When you have a second account for business funds, your business name will appear on invoices and payment paperwork rather than your personal name. This will aid both suppliers and customers become more familiar with your company's name. Final Words  Even if your business is new and not yet profitable, it is critical to get off to a good start by keeping personal and business finances separate. At CJCPA, we advise all business owners to do the same, while we keep your records ready for tax season or audits. Our experts streamline your books and provide accurate financial statements, allowing you to focus on business growth. Connect with us TODAY and explore our best-in-class services to address your financial needs.
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