Keeping personal and business accounts separate

Why it’s a good idea to keep personal and business accounts separate

Business and personal checking accounts are generally very similar, with offerings like debit cards and checks, ACH (Automated Clearing House) transfers, and mobile banking or apps. 

But like the old adage, it’s not a good idea to mix business with pleasure – or personal, in this case!

Even the smallest of small businesses – hats off to you just starting out, trying to make your side hustle your full-time thing, or whatever your situation – can benefit from having a separate checking account for business and personal expenses.

Using personal finances to make your business dream a reality may seem easier, but it can lead to complications, confusion, and lost money.

Ready to learn about the benefits of setting up a business account? You can quickly bucket your banking into two categories.

Now that you know what to do, here are the top six reasons why having a separate bank account for your business is a good idea:

1. Better track your cash

It’s easier to get a clear sense of your business finances at a glance and over time when things are separate – even when you’re first starting. This is good for managing and understanding transactions, cash flow, and overall financial position. You can also create more accurate business reports whenever they’re needed, say for investors. Enjoy a little more peace of mind because you can see what’s happening with your business anytime and at a glance. 

2. Optimize tax deductions

Part of running a business? Navigating business taxes. From the jump, any fees charged to your business account are a tax-deductible expense. Beyond that, there are other deductions and expenses you’ll want to keep a record of. If you’re paying for things out of your personal pocket, instead of your business account, that becomes a big headache. You might miss something and miss out on a deduction. 

Office expenditures, operational expenses, inventory purchases, a business meal out, or travel costs – even if you find every transaction hidden in your personal checking statements, you’ll lose valuable hours tracking them down or drive your accountant a bit loopy. Skip that stress from the start and have it all more clearly laid out in your business bank statements. You’ll be glad, and your accountant will too when tax time comes.

3. Put your best professional foot forward

Build that brand equity via a business bank account! Suppliers, customers, and investors take notice if payments come from or to a personal account. A business account lends credibility and can boost your professional reputation as you’re getting started. 

A clear separation between your personal and business expenses is also a smart step toward building your business credit. Your account can serve as a reference on credit applications and give lenders important information in determining if they want to lend to your business.

4. Empower growth and collaboration

Your business may be a one-person show right now, but that may not always be the case. If you hope to have employees, partners, and other team members down the line – or work with professionals like a financial advisor, bookkeeper, or accountant – consider setting up a business bank account. 

Why? Some business accounts will let you add users or give access to pay bills, make purchases, or tackle other essential tasks. Professionals like CPAs can do their work better and faster if they can log in and view your accounts.

5. Limit your liability

Many businesses set up an LLC or other type of corporation. If you go that route, you must have a separate bank account if you have a separate legal entity for your business. If you are a sole proprietorship, the legal requirements are different – but be mindful that commingling your personal and business finances puts you at greater risk financially. 

You can protect your personal assets from business bankruptcy, creditors, and other legal actions easier if you have separate accounts. Remember, the type of entity you choose for your business can impact liabilities, so check in with your CPA or attorney about your particular situation.

6. Get more from your bank

Getting a business credit card can be easier with an existing business account relationship with your bank. A business credit card can offer points for travel or cash back, a bonus for all those relevant business purchases. Plus, those expenses get tracked in a single place. 

Beyond a credit card, many banks, like Fremont Bank, offer services to their banking customers that can help your business grow – like the Fremont Bank Small Business Directory.

Wait. Can my business bank account and personal bank account be at the same bank? Absolutely! Many business owners prefer to have both types of accounts at one bank. Why? 

Here are three quick reasons:

1. Transfers between your personal and business accounts happen quicker and without extra charges. No waiting days for transactions to clear. 
2. Building a relationship with one bank will be easier – and more convenient! This relationship can be helpful if you need to apply for a business loan.
3. There are often discounts and other savings if you open multiple accounts at the same bank.

Have a personal bank account with Fremont Bank? Interested in talking about opening a business bank account? We can’t wait to help your business dreams come true. Let’s talk!