Is setting up a business bank account necessary for running a business?
According to the US Chamber of Commerce, there are over 30 million small businesses in the US. However, 27% use the same bank account for personal and business assets. This can hinder your business growth and ultimately prevent you from achieving your dreams of financial freedom.
The truth is, whether you already own a small business or are planning to launch one, there are several reasons why you should be separating your assets.
1 – Gives off a Professional Image
When doing business with other individuals, it’s best to provide a separate method of transaction. This gives your business a much more professional image, which consequently improves customer loyalty as well.
According to an article ‘Business Relationship Etiquette’, 85% of success in business is obtained through people skills. Proper business etiquette also helps build your image so you present a good front to prospects, business partners, and investors.
2 – Filing Business Taxes Is Easier
Perhaps the most important reason to separate your personal and business assets from the get-go is that it will save you a substantial amount of time and prevent so much stress when filing taxes.
How To Start An LLC highlights that many small to medium businesses (SMBs) apply as LLCs for this very reason. With LLCs and similar business structures, there are often registered agents that are responsible for legal and tax correspondence so that double taxation is more easily avoided.
3 – Makes for More Accurate Bookkeeping
Many SMB owners and working professionals in general struggle with keeping their bookkeeping matters accurate. When you mix your finances, it’s hard to tell what belongs to you and what belongs to your business – you might not even be aware that your business is suffering from losses.
Besides separating assets, you may even want to employ the services of a bookkeeper or an accountant to help you keep your finances in order. Accurate bookkeeping is an essential step towards financial maturity and freedom.
4 – Prevents Unnecessary Spending
In our article on The Rules of Money, we highlight the importance of ‘living within your means’. In other words, you must always spend less than you earn. However, having only one account makes it easier for you to spend hard-earned money impulsively.
Similar to the case of having no savings account, you might end up using business money for personal bills and even unnecessary spending. This could lead you to incur bad credit and lead you further away from living a debt-free life – which brings us to our next point.
5 – Helps You Build Business Credit
Separating your personal assets from your business is a crucial step in building good business credit. Forbes explains that establishing a business credit profile reduces the financial pressure on your personal credit profile and your personal finances in general.
Access to a business credit card could also provide countless growth opportunities as well. Moreover, a good business credit score can help you gain access to low-cost business loans and even protect you in instances of legal fallout.
All in all, separating your personal and business assets makes you appear professional, aids you in filing taxes, helps with bookkeeping, prevents unnecessary spending, and grants good business credit.
Although it might incur more charges here and there and be a bit more time-consuming than running just one account, it’s definitely a power move – especially if you want to run your business seriously and work towards financial freedom.