All right, business owners. Let’s get into it — how are your finances looking?
I’m not talking about your revenue, expenses, or profits (find that discussion here) — I’m talking about your literal financial setup. That means your bank accounts!
And the million-dollar question is … do you have separate bank accounts for your business and personal finances?
If you answered yes, give yourself a pat on the back. (And maybe spend some time diving a little deeper into your finances.)
If you answered no, you probably know what’s coming next. Yep — it’s time to separate those accounts!
Separating your business and personal accounts is crucial. It makes it easier to track your transactions and file your taxes. So let’s talk about why you should open a business account and how to do it.
Opening a bank account for your business is the first thing you should do when you start out as an entrepreneur. Even if you plan to be a solopreneur who never incorporates or hires employees, separating your personal and business finances is critical.
I know, I know, many of us didn’t open a business account when we first started out. And that’s OK — now is the perfect time to take care of it and reorganize your finances.
Picture this — you’re pulling up your monthly bank statement to enter all the transactions into your books. (Or you’re sending that paperwork to your bookkeeper 👋).
And you see a big purchase from Target — was that business or personal?
You remember going to Target to get stuff for your business, but chances are you picked up a couple fun personal items too.
So now you’ve got to try to find an itemized receipt so you can figure out how much of the bill was a legit business expense.
It’s a stressful, time-consuming process that you could have easily avoided if you’d just had a separate debit card for your business!
And it’s not just an issue when you buy stuff at “we sell everything” retailers like Amazon or Target. If all of your personal and business purchases are coming out of the same account, it’s easy to miss one-off deductible expenses that get lost in pages and pages of monthly transactions.
Let’s look at some of the other reasons why it’s so important to have a separate business bank account:
If you’re working with a bookkeeper and/or CPA, you need to provide them with detailed financial records. But do you really want them going through all your personal household purchases?
Probably not! (And trust me, we bookkeepers don’t really want to see all your personal purchases either!)
All your bookkeeper needs to see is how much your clients paid you (revenue) and how much you spent on stuff for your business (expenses). All your personal transactions are irrelevant — and often distracting.
OK, but what if privacy isn’t an issue because you do your books yourself?
Even if you’re not worried about sharing your personal spending habits with a bookkeeper, you should still open a separate business account. That’s the law!
Most states require business owners to maintain a separate business bank account. So do yourself a favor and just open that account. It’s way easier than taking the time to comb through your state’s legal code to figure out if it’s required where you live.
And having a separate business account helps protect your personal finances from what’s going on in your business.
Keeping your business finances separate is crucial even if you’re a solopreneur. When you set up an LLC (which you should!), you get liability protection for your business. That means if your company ever gets sued or drawn into a legal situation, only official business assets are at risk.
But if you only have one bank account, then it looks like all your finances are related to your business — which means your personal assets could be up for grabs in a lawsuit! That completely negates the potential benefits of forming an LLC in the first place.
Having a separate bank account helps your business look legit. Think about hiring an electrician and having them ask you to pay with cash or Venmo — you’d probably question their credentials as a professional.
Having a separate bank account helps your business look like a legitimate, professional operation (even if you’re a solopreneur).
So, what are the steps to open a business account?
And if you already have a personal bank you love, you can check to see whether they have a good business account option.
Separating your business and personal finances makes it so much easier to maintain accurate, up-to-date books. And remember, good bookkeeping makes it easier to know exactly what’s going on in your business so you can make the right decisions to grow your profit. Plus, separating your business finances helps protect your personal assets if there’s ever a legal situation involving your business.
It’s best to open a new business bank account the day you start your business. But it’s never too late to take that step, even if you’ve been running your business for years.
So gather your paperwork, choose a bank, and open your new account!
Once you’ve got that account open, make sure to update your bookkeeping software so it’s pulling transactions from the new account. And if you’d rather not spend time on your books, let us help!
What do you get when you work with me and my team of bookkeepers?
Interested in that kind of support for YOUR creative online business?