Reasons why you need to separate Personal and Business Account

One of our clients’ most commonly asked questions is why businesses keep separating their business accounts from personal transactions. Understanding the importance of keeping your personal and business transactions separate is necessary. Below are the reasons why.

Many small business owners start off funding their own business from their savings. It’s a reality that is common to us. However, recommended that you maintain separate business and personal bank accounts to avoid disaster in the long run. These are some reasons you should create individual bank accounts for your business.

Builds credibility & professionalism

Separating business accounts from your personal can create and build a professional image that can add credibility to your own business. Yes, it doesn’t only help you develop your profile, but it can make a significant identity to your business. Aside from that, using a bank account to make and receive payments directly through your business establishes greater trust with suppliers and clients. It is essential because you want people to take your business seriously.

Tax Reasons

One of the fundamental reasons you need to separate the business and personal account is for tax purposes. Many business owners separate their business and personal finances because it allows them to write off business expenses as part of their tax deductions. In addition, this can be useful when audited by the Australian Taxation Office (ATO). Having your finances merged will raise the possibility of the ATO auditing your business and personal records. You don’t want that to happen.

Organized bookkeeping

Another thing you need to note while setting up a separate business account is that it lets you easily track your business transactions. With accurate and up-to-date bookkeeping, you can catch up faster on year-end accounting. QuickBooks and Xero are two accounting software that can help you record your revenue and expenses in real-time.

Leverage Wise

You must know many differences in how leverage works for personal and business. Conversely, leveraging can be risky as you often put funds and assets on the line. Meanwhile, on the business side, leverage is used to increase profits, so by leveraging, you can invest less in your business while setting yourself up for future profits. That is how leveraging takes part in setting up separate business accounts.

Business credit

Note that opening a separate business account can help your business credit rating. But how? A business’s operating capital is vital to its growth and the acquisition of larger loans. Credentials also determine whether or not to extend credit. A strong credit score can help you secure better

terms for business loans and reduce the cost of business insurance. Establishing your business credit becomes more complex if your personal and business incomes combine. If you don’t want to encounter some difficulties, you’d better open a separate business account.

Cash Flow Management

Yes! You read it right. Separating business and personal finance makes managing the current cash situation easier. You can efficiently perform a quick cash injection when your balance is running low.

Conclusion:

It is essential to know why separating personal savings from business transactions is necessary for all business owners, whether you’re a newbie or not.

To find out more about starting a small business or for more questions, please schedule a strategy meeting with me here