It’s tempting when you start a new business to just use your existing personal bank account for all payments and transactions.
But, as we’re about to show, this can lead to a tangled web of messy accounts, and can actually cost you money in the long run.
Geez, no one wants that!
Therefore, it’s much better to have a separate account for your business.
Even if you started with your personal account, it’s not too late to move over to separate accounts.
Let’s look at why keeping your bank accounts separate is a winning move for anyone starting or managing a business.
Separate your accounts for business success
If you are running a business or working as a freelancer/sub-contractor, you will be doing yourself (and your bookkeeper!) a favour by having separate business and personal bank accounts. Larger businesses might even have several business accounts.
Here is how you benefit from setting up a business bank account:
1. “I am very professional”
You will immediately look more professional by having a dedicated business account. With a few simple steps (ensure the account is in your business name, for example), you can determine a more serious business setup and help establish your business identity.
It also signals to others that your business is legit. Clients or suppliers might feel less secure paying into your personal account, wondering if you are a professional business or not.
2. “It’s just business, darling”
Keeping business and personal transactions separate can help you develop a professional business mindset. This can in turn help you be more mindful of your spending and how your business goals are tracking. Now you’ll be better-placed to gauge where you're at with your business.
If you can start to think like a business owner, you will be in a better place to make decisions and grow your income, whilst still having fun and enjoying your work.
3. “There’s no crying during tax season”
While we all want to do the right thing and pay what tax we owe, no one wants to pay more tax than they need to.
Plus, you actually need to know what tax you owe and be able to pay your tax bill when it is due. Having a dedicated business bank account makes it easier for your accountant to see all your transactions and know what to claim on your tax return and where to focus your tax claims.
Therefore, you can minimise your tax bill, and reduce your overall outgoing costs, which in turn increases your profits.
So, enjoy the benefits of maximising tax deductions, including writing off business expenses, and avoid the hassle of getting things wrong.
4. “Numbers… numbers everywhere”
Do you want to be paying your bookkeeper to sort through all your receipts and transactions? Wouldn’t you rather focus your investment in their time in a better way by not making them wade through your personal transactions?
Also, by giving your business financial statements to your accountant in an organised way, it helps avoid inaccuracies (which could save you from being contacted by the tax office for an audit!). This also makes it easier to complete Business Activity Statement reporting.
Furthermore, once your business starts using accounting software, you’ll want to link your accounting packages directly with your bank account, to automate a lot of the bookwork and save you even more time and money.
5. Show me the money!
Too many business owners forget to pay themselves or don’t realise how much (or little) the business is making.
It’s important to not get into a cycle of ‘feast or famine', by working out your income and paying yourself a salary each month.
The ‘feast or famine’ cycle is where you sell a lot of stock, or book a lot of work, and therefore you are rolling in cash… but the next month it’s a bit quieter and now you can’t pay your rent or afford your insurances.
This is not good.
With separate bank accounts, it is easier to monitor savings and profits. By paying yourself a salary, you can get a true picture of whether or not the business is able to sustain you on an ongoing basis.
6. “Give me credit!”
As your business grows you may want or need to apply for credit. It will be easier to demonstrate your financial position if you have a separate business bank account.
Banks will want to see your business accounts, your incomings/outgoings, and your ability to repay the loan. Imagine the nightmare of tangled statements if this is not all separate from your personal accounts!
The clearer your financial records, the simpler it is to apply for funding from a lender or credit provider.
Get your accounts in order today!
So, are you ready to get that dedicated business bank account? You will forever be happy that you did!
At Counting Clouds, we can help you grow your business through optimal bookkeeping methods, payroll management, ATO lodgements, and cash flow forecasting, which in turn can help you set goals and plan for the future.
Please email us or call us if you do need to chat: