When I first started working with creative small business owners (photographers, designers, and more) I was shocked to learn that many amazingly talented creators don’t keep their personal and business finances separate.
When I realized that most businesses (especially in creative industries) start as side-hustles, that reality became a lot less shocking!
As an owner, making the transition from part-time to full-time feels like a big jump. It’s easy to get caught up in running the business every day rather than making sure to iron out all of the details surrounding your business.
A business bank account is one of the most important and simplest steps that you can take as a small business owner to building a successful business.
You want to be taken seriously.
Most businesses start as a simple hobby – and there’s absolutely nothing wrong with that.
The phrase “side hustle” started being used as early as 1950 and it’s only become more popular with today’s nonstop hustle culture. If you’re ready to have your business cross over from side hustle territory into being a legitimate business, you’ll need a separate bank account.
A business bank account opens up doors into incredible opportunities like business loans and lines of credit, which can become essential building blocks for expanding your operation.
Having a business bank account is a key first step in legitimizing your business in the eyes of banks, the IRS, and even other companies and services.
You are taking credit and debit card payments.
You deserve to get paid for the work that you do and payment can come in many different forms!
Aside from cash, one of the most popular ways of paying for a good or service is with the swipe of a credit or debit card. Many credit card processing companies require small businesses to have a bank account that money can be deposited into.
Similarly, if a customer addresses a check to your business name, you’ll only be able to deposit that check into your business’ official bank account.
You want to protect yourself in an audit.
The IRS performs over 1 million tax return audits annually. As a business owner, it’s incredibly important to have a clear record of any transactions that come in or out of your bank account.
To provide that paper trail and protect your business from being caught off-guard in an audit, a business bank account provides a clear record of cash flows in and out of your business. Keeping receipts for expenses paid throughout the year is a must for extra backup.
Refusing to mix business and personal finances can make the difference between passing or failing your audit!
You are incorporating or forming an LLC.
While the IRS does not require a separate bank account for LLCs, it’s incredibly important to have one.
An LLC is a separate entity from its owners. This means that there is an extra layer of legal protection between business owners and their customers. If legal action is taken against an LLC, only the assets that are owned by the LLC can be endangered.
By blurring the lines between your business’ and personal finances through not establishing a separate bank account, you are putting yourself at unnecessary risk. If legal actions were to be taken against your business, there could be serious consequences involving your personal assets.
You need easier bookkeeping and tax preparation.
One of the simplest ways to make tax time easier is to keep your business transactions separate from your own finances.
By separating your finances into two distinct accounts, you (or your bookkeeper) can easily track spending and expenses within your business. This allows for easier categorization of tax write-offs through business expenses and a higher probability of your taxes being done correctly!
Bookkeeping is made easy when your finances are properly separated, which allows you to easily run your businesses and keep track of your business budget progress.
If you’re ready to get started with business bookkeeping and find a better way to manage your business, Amarlo is here to help!