Starting a business on your own can be expensive. You'll need to be able to purchase supplies to build your product or provide your service. Depending on the type of company you run, you may also need money for employees and a location. You'll contribute your own finances to start, but once you've set up shop, it's crucial to keep your personal and business banking accounts separate.
"You should have three separate accounts – personal, retirement and business."
When you venture into self-employment, you may need to cut down on your spending. However, that doesn't mean reduce what you use in your personal life and put it toward your business, Entrepreneur explained. Saving enough money just to get by will land you in trouble if your company doesn't do as well as you'd hoped. Before you begin your entrepreneurial endeavors, you should have three separate accounts – personal, retirement and business. You need to have money to fall back on just in case.
However, you don't have to separate them completely. You can keep them at the same community bank as opposed to choosing two separate ones. Having all your accounts in one location can be beneficial to you personally and professionally, according to AllBusiness. If you manage your money well, you may have a better relationship with your financial institution. They'll see you know how to save and be more willing to help you if you need commercial loans in the future.
Maintaining professionalism in the public eye
Keeping your business and personal accounts separate will also help when it comes to taxes. Withdrawing from your own finances can interfere with your company's cash flow and records, the U.S. Small Business Association explained. The IRS requires that your own money be separate from your business's supply and you must make sure you keep detailed accounts of your revenue and expenses. It'll also make it easier come tax season. If you aren't sure where cash came from, you could run into problems with the government.
You'll also appear more professional to your clients and suppliers if you have separate accounts. If they receive payments from your finances, they may not think you're a legitimate business. It may also affect you getting paid on time and correctly, according to the SBA. However, by ensuring you have checks in your company's name, you'll create a professional persona for you and your organization.
While you'll have to start your business using your own finances, you should put enough aside to not affect your living situation. Keeping your company and personal accounts separate will ensure you don't run into any trouble.