While it may be tempting to start your new business venture without looking at the need for a bank account dedicated to your business activity, this might not be the smartest of choices.
As your business grows and expands, it’s extremely important to separate your business finances from your personal, day-to-day living.
New start-ups and part time business owners have a habit of co-mingling their finances with their personal money, and while it may be the easiest, most convenient and cheapest way of operating, it can have its drawbacks – especially further down the line.
Any prospective business owner should treat their business as a business, regardless of whether it’s a part-time venture or not; while setting up a separate bank account means additional bank fees and expenses, you are also storing up a lot of hassle for yourself in the future.
Many people already in business will vouch that keeping your business spending completely separate to your personal account ensures better manageability.
While many business current accounts available charge you for their services, there are others that waiver the charge as long as you pay in more than a certain amount each month.
Make sure that you shop around for the best options and you can take advantage of the best deals – don’t assume that your personal banking provider will be the smartest choice for business use.
Similarly, it’s also common for a sole trader or business owner to take out a credit card for business use – you can get a free credit report from Experian CreditExpert to see if what the likelihood of being eligible for such an application may be.
Although different lenders do have different criteria; generally speaking, the more blemish-free your credit report is, the better your chances of acceptance for credit will be.
If you’re still convinced that incorporating your business finances with your personal money is a good idea, here are some reasons why you should think again.
The concept of a hobby business
It’d be extremely difficult to prove to the government that you are trying to run a legitimate business if your finances don’t reflect this.
It’s a rule that only true businesses can deduct business expenses – running your business with your personal account may seem as though it’s more of a hobby business (i.e. not-for-profit) and you may have to prove otherwise.
The time of the tax return
Trying to get your taxes in order can be a pain at the best of times, let alone when you’re trying to navigate your way through your personal finance statements to find the business-related expenses.
Personal transactions have to remain completely separate from business ones, which is bound to be more complicated if you’ve combined them.
It’d also be easy to miss deductions if you’re searching through your personal current account.
Whether it’s you, or an accountant, completing your tax return, tidier, well-kept records will ensure that you can claim back every penny. If you operate from a separate business account, you’ll be able to provide a clear audit trail, too.
If your business operates from its own, separate business account, you will be demonstrating complete professionalism too – definitely a plus point when working with clients and attracting new business.
By shopping around for the best deal, you shouldn’t have to worry about spending extra each month on an account that isn’t completely suitable.
Remember, your business is a business, no matter how big it is, and treating it as such will give it the best chance of flourishing.
Further reading on business banking