A wise man once said keep your personal life separate from your business. We believe the same applies to accounting as well. It is no secret that the #1 accounting tip given to most startups is to open a separate business bank account. Although it may seem like opening another account means more effort and wasted time, it is very necessary.
Track and analyze the money
Adding a business bank account will help in maintaining a record of business expenses and deductions. It means you can track the inflow and outflow of cash effortlessly. It becomes easier to reconcile your bank accounts every month and ensure the number matches your records. Reconciliation will help you to analyze your business transactions. You can figure out whether your business is heading towards financial success or failure and take steps accordingly.
Taking out a business loan
Every business needs financing. Sometimes the source of that is a bank loan. Having a separate bank account facilitates taking out a loan for your business. Collateral typically is based on your accounts receivables or inventory assets and so good accounting records are also very helpful.
The legal aspect
For some companies, such as a C-Corp or LLC, having a separate business bank account is legally advised. IRS specifies that only a business can ask for business deductions. If your business and personal accounts are joint, you will have a tough time convincing the IRS about the legitimacy of your business, i.e. your business isn’t just a hobby. Plus, it helps having a distinct account for tax purposes. You won’t have to comb through each transaction categorizing them as personal or business.
Clean and Accurate Bookkeeping
Ultimately, it is necessary to have accurate record of transactions and financials. In case of an audit, you don’t want to dig through receipts and figure out which expense is personal and which is business. A different business bank account means a clear accounting and audit trail. It will provide irrefutable evidence of all your transactions, which translates to an easier life. Our outsourced bookkeeping service helps keep everything organized.
If you already have a business bank account and need help with recording and maintaining your financials…then connect with us!