Why your business needs a business banking account
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As a business owner, do you mix personal transactions and business transactions? It is a common issue. One survey found that more than one-quarter of small businesses say they co-mingle finances. And it is easy to see why given the wide range of priorities a small business owner oversees every day, using a bank account that is already set up often seems like the easiest and most logical choice.
But, while it might seem simpler to only manage one account, that is not actually the case. Here are five reasons you should consider separating your business account from your personal account.
A business account simplifies bookkeeping and taxes
Where you see the ease of just having one set of records, your accountant sees a web of confusion as they try to sort out which transaction are personal, and which are business-related. Not only does it make it harder to get a valuation on your business and track cash flow, but it can cause difficulty when you are determining what items might be tax-deductible. This confusion means you could miss deductions you should be taking.
A business banking account offers you access to more features
Business accounts are designed to provide various business functions and therefore offer more choices. For example, you will have more flexible cash withdrawal limits and access to easy-to-use invoicing and payment acceptance. You will also have access to the support of a business banker, who can help advise you on a wide variety of business issues.
A business banking account might be necessary for your company structure
If you have incorporated your business as a partnership, corporation or even an "incorporated" sole proprietorship, the IRS requires that you have a separate business account. These company structures can be advantageous for tax reasons; however, it is always wise to talk to an accountant about benefits and potential disadvantages when making any move for tax purposes.
Even if you remain a "sole proprietorship," which does not legally need a business account, it still can be important for other reasons. In particular, the IRS has guidelines for determining whether your venture is a "business" or "hobby" for tax purposes.
A business account helps you prepare for future growth
When funds are co-mingled it can be hard to get a handle on your cash flow, both how much is coming in due to your business rather than income from other sources-like your spouse's salary-as well as what is going out. Most entrepreneurs find that keeping a watchful eye on expenses is one of the best ways to successfully help the business grow, but without a separate account, it is impossible to know what expenses are for what part of your life.
A business account might be necessary for a loan
When your business needs a loan, it can be difficult to obtain without having a preexisting relationship with a financial institution. There are two main types of business loans: secured and unsecured. A secured loan is supported by collateral, such as fixed assets, accounts receivable, or equipment. This means that if you fail to repay the loan, the financial institution can seize the collateral. An unsecured loan does not require collateral, so it is riskier for the financial institution. As a result, unsecured loans often have higher interest rates than secured loans.
If you want to find out more about how a business account can help you achieve your goals, contact Valley Strong Senior Business Banking Officer, Eric Steinback, at (661) 833-7418 or stop by the Tehachapi Branch, 1002 W. Tehachapi Blvd.
