As a business owner, it is important that you follow basic business practices for the health, security and longevity of your business. It is extremely important that business financials be separated from your personal finances.
3 reasons to keep your business finances separate from your personal finances
1. Avoid Audits
The IRS frown upon the co-mingling of business and personal funds. You are expected to have a business account. Expenses related to the business should be made out of the business account. Income from your clients should be directly deposited into your business account. This creates a clean and clear money trail which is what the IRS would like to see.
2. Protect yourself from liability
If your business is ever in legal trouble or is sued, you want a clear distinction that separates you personally from your business. If you co-mingle funds, you are not “behaving” like a business should. This can lead to you personally being liable for legal issues that should be covered under your business.
3. Efficient bookkeeping
Keeping your business and personal finances separate ensures that you capture all of your business expenses. Having a separate business bank account streamlines your bookkeeping thereby reducing your bookkeeping costs.
How can you accomplish separating business expenses from personal expenses?
The single most effective way to separate business from personal is to have a dedicated business bank account. Pay for your business expenses out of this account. Deposit money from your clients into this bank account. Contact your local banker to set up your business account. They can walk you through this process. And let us know if you have any questions or need any help.