When to separate your personal, business accounts
The question of when a business is big enough for a separate business account is a tricky one.
Although, there are differing opinions on the subject, it is always best to have a business bank account, regardless of the size of your business.
In fact, small business owners are wise to open a business account before making any business transactions, according to due.com/blog.
There are several reasons to separate personal and business banking but the primary reason is that is never a good idea to mingle funds. Commingling funds open the door a piercing of the corporate veil which can personally expose you to your business’s liabilities. Mixing personal and business funds can also lead to accounting and tax problems in the future.
Why your business needs its own account
Your business is going to have a lot of receivables (money coming in) and payables (money going out). If all of those funds are going into a personal account, the risk of confusing which deposits, withdrawals, and transfers increases drastically. And confusion is what leads to accounting, bills and tax headaches at the end of the year.
With that in mind, here are the primary reasons why small businesses of all sizes – from start-ups to contractors, to sole proprietors – should have a separate business account:
An advantage to keeping personal and business accounts separate is that you will always know which expenses are personal and which are business. Furthermore, many business expenses are tax deductible and the separate business account will help identify those deductions quickly.
Minimising bookkeeping errors
Whether you are a sole proprietor keeping simple records or a small business that uses a record-keeping system, a separate business account will make it easier to reconcile your account on a periodic basis.
Small businesses are not immune to audits. Keeping your personal and business accounts separate will not only help you keep better financial records but it can also prepare you for an audit or even prevent one from happening in the first place.
Corporate veil preservation
The corporate veil shields the owners of a business from personal liability for debts or negligence of the business. However, if you are shown to be commingling personal and business funds, or diverting business assets for personal use, you can lose this protection. Without the corporate veil, you expose all your personal assets to a significant amount of risk.
Easy to open
With the right documentation (which is minimal), opening a small business account could take only minutes of your time.
As your business grows, your need for banking products and services, such as business credit cards, business loans, and merchant services will also grow. Opening a commercial account can be the first step in forming a valuable banking relationship.
Business bank accounts are exclusively for big businesses. In fact, small business accounts will look and feel a lot like the personal account you are familiar with. They are also just as easy to use and setup. Assuming you are planning on having your business stick around for a while and grow, you will want to start off on solid ground by opening a business checking account.
Choosing the right bank for your business account
Choosing the right bank for your small business account may be the most important financial decision you make. That is because your future success can depend upon a few key factors related to your bank choice. This includes how you finance your growth. So, you want to find a banking partner you trust and that will be able to accommodate your business needs as you grow.
Here are the primary factors to consider when choosing a bank for your business:
Community banks can be a good choice for sole proprietors and small businesses that do not plan to scale beyond their city or county. If you have aggressive growth plans or strategies, a larger bank may be a better choice. Larger banks tend to have greater technology capabilities if electronic banking is central to your business.
This is related to bank size. If you want your banker to know you by name and you like quick decisions made at the local level, then a community bank or small regional bank may be your best choice. Alternatively, if you need evening, weekend, and holiday hours available to you, then you may want to work with a national bank.
Some businesses may have no problem doing the majority of their banking online. However, if you are going to be dealing with a significant number of cash deposits, then the physical location of a bank should be a primary concern.
Be sure to compare each bank’s schedule of fees. Determine which bank provides what you need for a reasonable price. Keep an eye out for monthly service fees, minimum balance fees, cash deposit fees, wire transfer fees and foreign transaction fees. You should not have a problem finding free business account. This is especially true if your needs are relatively simple. Most account providers will waive any fees if minimum balance or deposit requirements are met.
As with most other financial decisions, be sure to look at multiple banks before settling on the right choice for your business. Also, keep in mind the big picture of your company’s future growth. As your company grows, your business banking needs are likely to expand. And, in that sense, the bank will be almost as integral as a partner in your business.
The decision to open a business account is not a matter of ‘if’. Instead, it is a matter of ‘when’s. And, the best time to get started is during the start-up phase of your business. Commingling funds is never a good idea.
Keeping your personal finances separate from your business could be the best decision you can make for your future success. Plus, with easy setup and low (to free) cost, there is no good reason to avoid opening a business checking account for your small business. culled from punchng.com