Whether a person owns a multi-billion dollar company or works as a small-time freelancer, many of these business owners use the same account for personal and business, which is a mistake. Even though having more than one bank account can be inconvenient, a person should not use their personal account for business purposes as it can lead to legal liability.
According to business experts, the first step towards a successful business is to open a fresh business bank account. Cost is not an issue as most banks offer free business checking accounts, making it even easier for new business starters to open a separate account. Here are six reasons to have a business account for your small business.
Legal Protection
Every time a person wants to set up a corporation or a business, a primary benefit of doing so is the legal protection from liabilities that comes along with it. This is because the law looks at a corporation separately from the person who owns it. Therefore, if a party wants to sue a company, they can’t sue the owner as an individual. However, in the case of a financial association, a court can order an investigation regarding the owner.
Tax Advantages
Regardless of the nature of a business, having separate accounts has many advantages, including tax advantages. It does not matter whether a person sets up a Corporation, an LLC, or a Partnership. Sustaining a proper yet separate bank account will help them avoid pointless difficulties that may occur for your business.
Also, the IRS has strict rules for working as freelancers or from home about what they can deduct as business expenses. If a person uses their personal account for their business, the IRS may audit those deductions, regardless of whether they are legit expenses or not.
Credibility
If you use your personal account to cover accounts payable, the vendors or other entities you are making payments may question your business status. Using a separate bank account will make your business look more professional. A professional business account check will increase your credibility and legitimize you as a business.
Convenience
Having a separate business account and debit and credit cards specifically for your business will be convenient as you won’t have to figure out how to separate those expenses from your personal ones. Reporting of expenses can be very intimidating and hectic, especially for smaller businesses. When monitoring business expenses, having a credit card or bank statement specifically for the business can prove to be beneficial. Using a card will also provide business with a credit line that won’t be an option with traditional banks.
These business credits and debit cards also offer many other benefits like travel discounts, higher credit limits, and a more streamlined billing process along with better interest rates. With that, many cards also give rewards like cash back on office supplies and other business expenses.
Processing Credit Card Payments for Business
Thanks to online shopping, customers rarely carry cash. So what does a person do when a customer shows up in your business with just a debit or credit card? Under these circumstances, a business account will be essential. A business account will make it possible to accept debit and credit cards connected to the account. The two types of merchant accounts that connect received payments to your business account.
- Transitional merchant accounts transmit card payments using a card machine
- Online merchant accounts allow authentic card transactions safely online
Accounting
Your business accounting and bookkeeping system need to be in place from day one of your business. If you don’t have your personal and business accounts separated, this can be an unnecessary challenge for your accountant or bookkeeper. If you are handling your accounting through accounting and bookkeeping software yourself, this can simplify the accounting process.
Conclusion
No matter the size of your business, having a separate business account is essential. Whether it is to avoid liability or confusion, it should be your immediate priority from day one of your business or before.
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