Are you one of the many business owners that uses your personal account and personal credit cards for your business transactions as well as your household expenses? If the answer is yes, you are not alone! Many business owners do this because they perceive it to be easier and less expensive. However, it is extremely important to maintain separate accounts for business and personal transactions. In fact, we recommend that you open a small business bank account before you even make your first sale!
Many financial institutions have very affordable options for small businesses that do not have minimum deposit requirements or expensive monthly fees. Keeping your business separate fro your personal finances helps to ensure that there aren’t any “money mix ups” in your future.
Keep reading more to learn why Lime Accounting + Tax recommends that you maintain separate accounts.
Build your business credit
This is a very important consideration for all new businesses. Having a bank account in your business’ name establishes it as an entity with your financial institution. Over time as your business grows, you will likely want to apply for a business credit card to give you more borrowing power and flexibility to fund your business purchases. Having that bank account creates a relationship between your business and your bank.
Creating a professional image for your business
Part of building a successful business is building your brand and building trust with your clients. Your clients want to know that the business that they are dealing with is a legitimate entity with staying power, which gives them a sense of security when dealing with your business. Many people are very leery of writing a cheque to an individual for a business expense, especially if they receive an invoice from a company then are asked to make the payment to an individual. This just doesn’t create a professional image or instill confidence in your business or you as a business owner! By having a business bank account, you maintain consistency and a professional image to your customers and suppliers.
Keeping your personal information to yourself
Should there ever come a time when Canada Revenue Agency asks to review your business records as part of a review or audit, they will be examining your business’ bank account transactions. If you have all of your business transactions mixed in with your personal transactions, the auditor is now reviewing both your business and personal information all at once. That opens the doors for CRA to potentially start asking more questions and take a deeper dive into your personal tax account in addition to your business tax account. This can cause you additional hassle, expense and stress. Taking the time to open a business account could potentially save you from this situation in the future.
It is cheaper than you think…and can even save you money!
By keeping all of your business transactions in one place, it makes it infinitely easier to keep your records organized and facilitates efficient bookkeeping. The more time your accountant has to spend sorting out your finances between what is business and what is personal, the more it will cost you. Oftentimes, the small amount you will pay in bank fees for a separate business bank account in a year are far less expensive than the increased fees you will pay your accountant to sort your business transactions from your personal ones. Plus, your accountant will thank you for it!
Accountant in Burlington ON. 