When entrepreneurs finally decide to follow their dreams and start their own business, there are a lot of things they have to do in those early days. Acquiring funding, growing customers, hiring qualified staff, and bringing quality products or services to the market are but a few. Opening a business checking account that’s separate from their personal account, is sometimes delayed until later in the process—if it’s done at all.
But keeping personal and business bank accounts separate is exactly what entrepreneurs should do early in the process, and it will pay off greatly. Here are five reasons why:
Protect Yourself From Liability
One of the benefits of registering your business as an LLC or corporation is the separation it offers between you and your business. This can protect you from personal liability in case something goes wrong at your business or someone tries to sue your business.
However, just registering as an LLC or other business entity is not enough to provide you with liability protection if you mingle your personal and business funds in a personal checking account. Unless you keep your personal assets and business assets separate, you could make your personal finances vulnerable, since the mingling of assets makes it appear as though the business is not a separate entity.
Clarity Around Cash flow
While your bank balance is by no means the complete picture when it comes to your cash flow, separating business and personal finances makes it easier to manage and react to your current cash situation.
If you notice, for example, that your balance is running low, you can perform a quick cash injection. If you notice there’s too much money lying dormant in your account, you can put it to better use elsewhere.
It’s also easier to demonstrate your financial position when you maintain separate business and personal bank accounts. The clearer your financial records, the simpler it is to apply for funding from a lender or credit provider.
Make Tax Time a Little Less Stressful
Unless you’re a sole proprietorship, your business will have to file a separate tax return at the end of the year. It can be a nightmare to ferret out business income and expenses when everything’s pooled into one account. In contrast, a year-end bank statement from the business account makes entering income and expenses a breeze. A distinct business account will cut down on the time it takes to file your taxes and the fees you pay to tax professionals.
Look More Professional
Using a business account also adds a note of professionalism to your company. Imagine you approach a potential vendor, supplier, or partner. You pitch them on why they should work with you. Eventually, you win them over and they ask for a deposit—which you hand over in the form of a personal check. At best, they’ll raise an eyebrow and wonder why you don’t have a business account. At worst, they could wonder whether you’re a legitimate business and second-guess working with you.
Or, imagine you need to refund a dissatisfied customer. Would you write them a personal check or send money from your personal account?
It looks unprofessional—dodgy even—to use your personal checking account to pay business expenses this way. A business checking account sends a message that you’re legitimate and here to stay.
Build Your Business's Credit History
First and foremost, understand that a business bank account does not directly establish credit for your business. But it does open the door for you to do so.
You can’t open a business credit line or loan without a business bank account. Opening an account meets one of many preliminary criteria to qualify for a business credit account. Lenders will ask to see bank statements, and they like to see an established business banking history—the longer, the better.
Your business banking partner can also serve as an early reference for your business. Even if you don’t use them directly for a loan or credit line, they may still help you secure credit elsewhere with a reference letter.
Let's Talk Business, Your Business.
No matter how large or small your venture is, opening a business checking account is critical. So, don’t put it off any longer. Drop by your nearest TFNB location to talk to one of our commercial bankers—you don’t need an appointment. We’ll chat through your financial questions and can open your business checking account that very same day.
If you have any questions or would like to know more about our banking solutions, contact us at 254-840-2836
