If you are an entrepreneur who is starting a small business, you will definitely face a lot of decisions. A few choices are on how to set up and run the company, setup location, and financial management. For some sole proprietors, it would seem easier or much more convenient to utilize a checking account that already exists and set up to manage certain business finances. They usually use a personal checking account. Joining accumulated finances is a common practice for most individuals. However, there are certain negative consequences for you, as a small business proprietor.
It seems understandably easy if you would be using the same account for personal and business finances. It would save you time to find identification and less paperwork to be accomplished. It would also save you another trip to your nearest bank to open a new account. Small business proprietors who are starting out take a close look on their expenditures and would usually invest their personal money into the new business. That is the main reason why people decide to use a personal checking account for small business commitments and purposes. Basically, personal checking accounts have lower minimum balance necessities to elude certain fees.
It is highly recommended that you work and discuss matters with your bank as they may be able to offer you additional benefits, discounts, and the capability for them to link accounts. Combining funds may be needed to meet the balance requirements.
Advantages of Business Accounts
Business checking accounts have certain advantages especially for small business holders. One is it is capable of linking certain payment services. You may also receive relationship discounts in the future. Not like a personal checking account, business accounts give proprietors the flexibility to agree to take debit card, credit card, checks, and cash. This provides a lot more convenience and it is easier for the consumers and the proprietor. In addition, it would also be easier for you to see and monitor your income and expenses. As a result, this would shorten and simplify your bookkeeping work.
Owners who have personal and business monetary finances in one account may find it difficult to obtain a clear view or in monitoring the proper cash flow. It would also be hard to get and produce needed income statements. Having two or separate accounts would be an advantage regarding tax time for both.
Establishing the Right Structure
It is much easier to file business income on personal tax return. However, you may miss certain deductions and heighten your audit risk. This is due to expenses or income that is misrepresented.
Small business owners may have some expenses that may not be logged or missed such as traveling costs, start-up expenditures, and other expenses utilized for research. If these are settled through your personal account, you must keep an accurate log of all data and receipts for monetary tracking. On the other hand, having a business entity right from the beginning would give you a huge advantage as tracking would be much easier and convenient.
It is highly recommended that you talk to your bank regarding personal and business-related finances in order for you to get the best service and the right tools needed for you to separate your personal and business endeavors.