To effectively finance a business, it isn’t enough to just keep your records and files organized. Opening a business bank account should be one of the first few steps you take in starting your own company. After all, nobody wants an accounting mess when, a few months down the line, you need to go over your business financial records only to find your personal and business expenses all mixed up.
You can also avoid jeopardizing your personal finances by keeping your personal banking account separate from one intended for business.
Here’s why you should consider opening a separate account for business banking transactions.
1. Neat and accurate bookkeeping
Imagine how your bank statement will look if you combine your personal and business transactions. It’s a recipe for disaster and can ruin your chances of managing financial risks efficiently. Nobody would want to deal with that mess, especially during income tax period.
Having a different account for all your business transactions enables you to have a neat record to hand over to your accountant. Remember, keeping your receipts and invoices in agreement with your bank statements is also important. So that when the time for income tax filing comes around, you’ll be in a good shape with less stress.
2. Proof that you’re serious about your business
In any state or country, you have to prove that your business is legitimate and not a hobby. You have to show that your venture’s main goal is to seek profit. Or else, the government may deprive you of tax deductions that only a business entity can take.
Even if you’re not profitable yet, having a business account strengthens your legitimacy. The act of opening a business bank account alone already indicates that you are serious about your enterprise.
3. Card payment facility
If your business only accepts payments through cash or checks is one more reason you should open a business account. By doing so, you can help ease up payment transactions because your business is equipped to process credit card accounts. Furthermore, accepting credit and debit card transactions grants more customers access to your business.
4. Credits score improvement for access to more capital
Improving a company’s credit score is key in getting additional financing for your business. One of the reasons why lenders and banks reject requests for funding is when a business owner doesn’t have a business bank account.
Even if you’re having a personal financial problem, a business account can help improve your cash flow and create a track record of timely payments. It also helps improve your credit score, making it easier for you to borrow cash for your venture. Plus, you’ll have access to online banking and payroll services which can definitely make your business run smoother.
5. Protection from creditors
Whatever type of company you have, opening a business account proves that it’s a separate legal entity from your person. When you have legal issues to deal with, your business bank account is proof that your business is not a part of your personal assets. This minimizes personal risks and protects your personal assets from any unpaid vendor aggressively chasing payments.
6. Indicator of professionalism
Every business wants to appear professional so that customers can put their trust in the company. And by keeping your finances separate, you’ll enhance your company’s image of professionalism.
A business bank account also extends your professional image and strengthens your corporate identity through branded checks. This means that when you issue checks for suppliers, they’ll see that it’s coming from a real company.
7. Maximizing deductions
Most business owners especially SMEs often miss deductions during tax times. Seeing only business-related financial activities allows you to spot potential deductions better. With an established log of business expenses in your hands, you can claim and identify the deductions you should merit.
8. Banking task management
As your business grows, it’ll become harder to run all aspects of the company which is why you need to outsource task including bank errands. Instead of handling everything yourself, you can assign a trusted employee to handle business banking tasks.
To enhance the security of your business account, you may also have your own system of internal checks and balances. You can set it up in such a way so that two signatories (or more) are required for each check on your business account to avoid financial fraud.
Now that you know the significance of opening a business bank account, there’s no reason not to make it a priority. It’ll make your banking process so much easier, and help your business and reputation grow in so many ways.