Tracking business expenses, profits, and losses is important, but it can quickly become a full-time job. Do you really need both bank and credit card accounts for business purposes only? Not necessarily — but think ahead to tax season. Let’s consider a few ways in which separating business expenses from personal income can streamline your job, and potentially make your operation more profitable.
Tame your taxes
Imagine having to sort through a year’s worth of bank account statements containing both business and personal expenses. Was the lunch that you paid for on the first Tuesday of last March a casual outing with a friend, or a business meeting with a colleague? Even if you practice monthly bookkeeping, having a separate bank and credit card account solely for business transactions will help lighten your workload year-round, and will prove to be especially helpful during tax season.
If you plan to use your personal account to manage the expenses of your incorporated business, you might face situations where your personal assets would be at risk if your business experiences financial hardships such as outstanding debts. This is a discussion worth having with your accountant or legal advisor before making any significant changes.
Avoid the debit and credit card dilemma
Don’t plan on accepting debit and credit card payments from shoppers using your personal bank account. Typically, you can only combine debit-machine services with business or merchant accounts. Shoppers find quick transactions (like swiping a card) appealing, which can translate into increased sales, offsetting the cost of a separate account for your business.
Unless you run a cash-only business, talk to your bank about the benefits of a business account, including mobile money management which can save you trips to the bank. You should also ask about interest, a line of credit, and ways to lower banking fees by going paperless, setting up automated payments, and maintaining a minimum account balance.
Look and feel professional
Have you ever been asked to make out a personal check to a contractor? If so, their business likely operates under a personal bank account. Some people feel more comfortable writing checks to businesses and not individuals. Operating under a business name has the added benefit of looking more professional on checks — not to mention on business cards and websites. To accept checks made out in your business’s name, you need to register that name and open a business account under it.
Allowing select workers to make daily deposits or perform other transactions on your business account fosters a sense trust, and allows you to focus on other business matters. With that in mind, note that business accounts typically allow for multiple signers to manage them.
Beyond looking professional, it’s important to be professionally organized, as you never know when you may get audited. If you are audited, the faster you can access your records of income, expenses, and deductions, the sooner you can get back to everyday business. If you’re organized and keep business banking account and credit cards separate from your personal statements, an impromptu audit will feel less stressful.
Use insights to your benefit
If you roll your personal and business finances into one account, you might miss a downward trend or the chance to reassess your spending habits to boost your marketing efforts. On the other hand, when you glance over business account statements and see every debit and credit charge neatly sorted into columns, you can gauge whether you’re heading towards a profitable month, quarter, or year.
As a proprietor, profitability is important — but so is free time. If you can optimize your free time — and possibly make more sales — by tracking business expenses and income with separate bank and credit card accounts, what do you have to lose?