It might be easier to use personal funds for business reasons for your small business, but it’s not the most brilliant move you can make.
If yours is a young small business, while it may appear to be more convenient to maintain your personal and business funds in the same account, it is more efficient in the long term to keep them separate—one for personal and one for business. Here are six reasons why keeping your accounts separate is the best way to go.
1. Easily monitor your company’s financial flow
Separating your personal and corporate accounts can help you gain a better understanding of your company’s cash flow. You’ll want to keep track of your expenses if you’re utilizing your finances to help with your business’s start-up fees.
When you have a single company account statement to check, it will be easier to monitor your balance sheet—income versus expenses. This can also assist you in gaining a better understanding of how your firm is performing at any given time and forecasting your future cash flow. Consider looking for banking offerings that offer the following financial services for your company:
A business checking account that can help you keep track of all of your financial transactions linked to your business in one spot.
Mobile banking allows you to conduct business banking while on the go, and generally includes features such as mobile deposit, bill pay, and wire transfer.
2. Improve the efficiency of your accounting
Separating your personal and company bank accounts also makes tax time easier. You’ll be able to quickly obtain the appropriate information for your tax statements if you take the steps ahead of time to separate your business checking account from your personal bank account, whether you decide your business’ tax due date will be.
If you use an accountant, you might want to look into using an internet banking tool to keep track of your finances. Some allow you to build permission sets, granting read-only access to outsiders such as accountants and bookkeepers to assist you in generating your financial statements.
Some banks go even further and provide an online accounting option that you may use without installing any software or purchasing any equipment. This may also be useful for:
3. Take advantage of tax perks and deductions.
A lot of fast-moving parts go into starting a business. That’s why you should keep note of any invoices, transactions, and deductions that may affect how you file your business taxes later. It will be easier to accomplish this at tax time if you establish your firm and have a separate account.
Because there are so many potential tax write-offs available to business owners, it’s probably advisable to consult with an accountant early on for professional advice. If you’re a licensed corporation or an independent contractor, for example, there may be deductions for your home office based on CRA criteria you don’t fully comprehend.
Many of us switched from office to home-based employment during the pandemic, so this doesn’t apply if you work from home for someone else; it only applies if you work for yourself in a location in your home that is solely dedicated to your business operations.
Supplies and utilities such as electric/gas, hydro, internet, and phone bills are examples of expenses that you might be able to deduct. You may even be eligible to deduct all or part of the costs of using a vehicle, as well as meals and travel expenditures related to your business.
4. Defend your assets from legal actions.
Keeping your business and personal finances separate can protect your assets in the event of legal action.
Nobody wants to consider the possibility of facing difficult times in their business, such as having to dissolve it or becoming embroiled in legal troubles. If this happens, you must keep your hard-earned personal assets protected, such as cash deposits, retirement funds, and personal property, so you can get back on your feet quickly.
When deciding the type of corporate entity to form, keep in mind that some provide more protection than others. Always get advice from an accountant or lawyer to determine the best course of action for your specific situation.
Finally, you should not only ensure that your business and personal cash deposits are kept separate, but you should also consider segregating operating agreements by having your business name and account details mentioned on lease agreements and supplier contracts. This can also assist you in selecting suitable insurance coverage.
5. Create a professional image and reputation
When your business name shows on invoices and credit cards, for example, a separate business account can help your company appear more established and legitimate. You, like many other business owners, may choose to operate under your own name at first, but as your company expands, you may want to consider operating under a distinct business name. All of this can make you seem more trustworthy to clients, suppliers, and partners, which can help you establish brand equity.
You should also get a business credit card with your company’s name on it. Not only do many cards offer benefits such as cashback or travel miles, but when you use them for regular business expenses like client lunches or office supplies, those spendings are consolidated into a single, easy-to-understand monthly invoice.
6. Access to financial services that are solely available to businesses, as well as other benefits
Limited business banking capabilities, such as a business checking account, are available from some institutions. Others, on the other hand, provide more robust services to help your company flourish. These may typically be scaled to match your demands, simplify your firm finances, and increase overall efficiency and cash flow.
Need help with your new small business finances? Contact us today and let’s discuss just how we can help you. Filing Taxes concisely deals with several complex issues; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.