While it may not seem it like at first, it’s extremely important to keep separate accounts for business and personal transactions. In fact, it’s recommended that you open a small business account before opening your doors to the public.
A business checking account is simple to open. Many financial institutions have affordable minimum deposit requirements, in the $25 to $50 range. This helps to ensure that there won’t be any “money mix-ups” in the future. Keep reading to learn more about why it’s best to maintain separate accounts.
Creating a Professional Image
In order to start and continue building a successful business, a professional image is a must. First and foremost, it gives your customers a sense of security. Many people are leery of writing checks out to an individual, as opposed to a business. Separate accounts also minimize the possibility of creditors making a claim against your personal assets.
Building Business Credit
Building business credit may not be something you think about right away. However, it’s very important to do so, especially as the business grows. A business credit card gives you more borrowing power.
In the event that your personal credit score is low at the time you’re starting your small business, don’t give up. There are many ways to raise your score over time. You just need to be patient. Once you qualify for business credit card, you’re able to deduct the interest as a business expense.
One way to build your personal credit score is to apply for a secured credit card. With a secured card, you deposit money in a savings account equal to that of the credit card limit. Since most of these cards report to all three credit bureaus, timely payments help to boost your score.
Protecting Personal Assets
If you choose to operate an LLC, separate accounts prevent you from becoming personally responsible for any unpaid debts your business may rack up. When the court system can’t distinguish between personal and business finances, chances are that personal assets will be seized to pay off the debt. Taking the time and effort to open a business account might save you from a devastating situation in the future.
Surviving Tax Season
Maintaining separate business and personal accounts help you survive the hectic tax season. Not only that, it also saves you time and money. If all of your finances are jumbled together, it makes it that much more difficult to sort things out for tax purposes.
The Small Business Administration suggests setting money aside for taxes on a regular basis. This is especially true if you intend paying your taxes on a quarterly basis. Keeping money in a business account prevents you from having to tap into your personal account to pay Uncle Sam.
Now that you know the main reasons for keeping your small business transactions separate from your personal spending, your business has an even better chance of succeeding. Unfortunately, there’s a lot of competition out there. So, you need to do all you can to stand out among the crowd.
