Mistake #1: Not Obtaining a Business Bank Account
Business Owner, “Hi, I’m looking for a Bookkeeper and I would like a quote for services.”
R. Payne LLC, “Sure, I’d love to assist you with that. Do you have a business bank account?”
Business Owner, “No.”
R. Payne LLC, “Why not? This is one big mistake you can make as a business owner.”
Business Owner, “Why is this a mistake?”
R. Payne LLC, “Well, as a business owner it’s best to keep business and personal finances separate.”
Business Owner, “Why? I mean, it’s all MY money?”
R. Payne LLC, “Yes, it is money you earned, but there’s more to it than that. Have a seat, and let’s talk!”
Ease of Tax Prep
When you file your taxes it’s hard to separate which are personal expenses and which are business expenses. When filing your taxes, you are able to take tax deductions allowable by the IRS. If you happen to overstate your tax deductions because you accounted for personal expenses as business expenses, then you can end up paying penalties for overstating on your business tax return. It is best to have your business finances and personal finances separate, it’s best NOT to use your business account for personal use.
Ease of Tracking Expenses
You are able to keep better track of your business financial activity when there are no personal transactions in the mix. Imagine having to sort through your personal and business life if they were all mixed together in one pot. You’d go crazy, right?! And so will your accountant or bookkeeper. This leads to the next point.
Having a business bank account provides business data to assist your bookkeeper in recording business activity for financial reporting. Accurate financial reports assist you as the business owner with making business decisions. If you have personal and business activity mixed together, then your business financials are not accurate when making business decisions.
Protection of Assets
In business legal issues can arise, so having a business bank account can help protect your personal assets. As stated previously, it’s best not to use your business account for personal expenses. If this is a habit you will hurt your business and your personal identity. Think about what personal assets you have and how these can be impacted the next time you mix personal and business expenses.
Business Owner Not Hobbyist
You want the IRS to know that your business is not a hobby, so that you can take advantage of tax deductions every year. However, they need to see you are making a profit. If you are in business to make a profit, then obtaining a business bank account is necessary.
Secure The Bag
If you want to be able to accept credit card payments from customers or have payments in your company name, then having a business bank account is necessary. If you decide to have a merchant account or automated payment processing for your business, these companies require you to have a business license and EIN number, which do not relate to a personal bank account. Also, when opening your bank account the names of the owners and the business name are on the account, so if clients pay funds to your business name, you are able to deposit those payments written in your company name. Unlike a personal, account this wouldn’t be possible.
Where The Money Resides
As you level up in your business, you may need more funding. You may look into business credit, loans, or other business funding for your business, right? Having a business bank account is important because to obtain “business” funds, you need a business bank account. By now you get where I am going with this, which leads to my next point.
Trusted Brand Image
As a business owner, you want to have a trusted and professional image of your business, so having a business bank account helps vendors, suppliers, customers, etc. see your business as a trusted and good brand in conducting business.
R. Payne LLC, “As you can see there are benefits to having a business bank account.”
Business Owner, “Yes, and thanks for explaining all of this. It was very helpful. So I guess I need to be on my way to opening a business bank account.”
R. Payne LLC, “Absolutely! Now, you’re off to a great start.