First-time entrepreneurs tend to make the mistake of using their current personal bank account for their new venture instead of opening an official business bank account.
This is certainly a tempting idea; you won’t have to prepare various documents and requirements and go through the process of opening a new bank account. In addition, you’ll have an easier time keeping track of the payments that come in, and the personal and company-related expenses that go out, since all these details can be found under just one account.
The Importance of Having a Corporate Bank Account
Using your personal account can indeed offer a lot of conveniences especially if you’re running your business on your own or with the help of just a few employees. However, this option can lead to various problems in the future.
If you’re still not convinced that you need to have a separate bank account for your business, here are five important reasons that will surely make you change your mind:
1. Give your new company more credibility.
As a new business, you need to do everything you can to impress and gain recognition among potential customers or clients, suppliers and possible investors. Having a corporate bank account will help you with this. Bear in mind that when you have a customer or client issuing a check under your name, it can look unprofessional, and that won’t do anything to bolster your brand’s credibility.
Having a bank account under your company’s name will help you send the right signals as you run your operations – something that is crucial during the initial stages of your new venture.
2. Help you stay organized come tax time.
When you use your personal bank account for your business, you will find it extremely difficult to stay on top of your books when it’s time to file your taxes. If there are several similar entries and you were unable to record or place some details about them, you’ll have to spend hours remembering what these transactions were all about. It can definitely be a nightmare separating all your personal transactions from all business-related ones.
A bank account dedicated purely to all business transactions will help streamline your recordkeeping. You will avoid a lot of confusion and have an easier job ahead of you when it’s time to file for taxes and other claims.
3. Avoid missing legitimate deductions.
When all your personal and business transactions are recorded under just one bank statement, you will have to spend numerous hours wading through all of these to look for business expenses to write off. As a result, you can overlook or miss deductions you may be entitled to that will affect your tax return. You can easily prevent this problem from coming up when you have a bank account dedicated to all business transactions.
4. Establish a clear audit trail that is easy to follow and understand.
Although businesses are not required by law to have a particular record keeping method and a separate bank account, it is a prerequisite that all records must be properly maintained, correct, complete, and permanent. All businesses need to have a clear record of all incomes and deductions as well. You will have a clear audit trail if you have a separate bank statement or record for your business.
5. Protect personal assets.
First-time entrepreneurs are often advised to form a limited liability company (LLC) since this type of business structure will help shield their personal assets in case an unfortunate event happens in the future. In case the business is sued or is unable to pay its debts, there is a corporate veil that officially separates the business owner from the business. As such, the business owner is still protected from financial loss or damage.
But to keep this personal liability protection, you have to look after your business. This includes diligently separating your business finances from your personal savings or money. Having a business bank account can clearly demonstrate that your company is its own entity and separate from you as an individual.
Opening a business bank account will translate to a bit of additional work for you, but the benefits you will gain will all be worth it. As such, once you’ve finalized everything with your new company, head to the best business bank to open a corporate account.