Being passionate may fuel the success of your business, but when you become too enthusiastic, this may affect you financially and operationally. When you don’t take time to think your decisions through, your impulsive behavior may cost you your business.
You may think that using your personal bank account can save you from the inconvenience of set-up fees and paperwork. Think again. To simplify things, always keep your business and personal accounts separate.
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Reasons to keep business and personal accounts separate
- Loss of revenue for “Hobby” businesses
More and more individuals are involved in hobby businesses where they don’t necessarily aim for profit. The business becomes more like a hobby than a source of income, so it’s expected that it doesn’t bring in much revenue.
However, the government will not credit your business without any clear, separate and documented financial information provided.
- Tax-related difficulties
It will be quite hard to file your taxes if your personal and business transactions are on the same financial statements. It will be a challenge to split them apart from each other once the paperwork is done.
But when you already have separate accounts, you can avoid the hassle of spending too much time preparing financial documents for taxation purposes.
- Auditing inconveniences
When you file taxes, there’s a chance you may be audited by tax officials. To make the auditing process easier, you must be able to separately account for your personal and business expenditure.
- Missed deductions (exemptions)
A business owner is entitled to different tax deductions. If your financial documents and transactions are mixed up, you will have a hard time determining and proving what should be deducted from your business tax. You may end up missing out on valuable tax deductions, and will be paying more taxes than you should.
- Misuse of funds
If all business and personal funds mix together, there’s a possibility of misuse. When the business is not doing well, you may get accustomed to using your personal funds to cover for business insufficiencies.
This misuse of funds can affect your business negatively and may end up giving you a false picture of how your business is doing, to your business’ great detriment.
But setting up a business bank account may not be as simple as you want, and there are important considerations to be made. To guide you through the process, here are four errors that you must avoid at all costs to prevent any inconveniences when opening your business account.
Error #1 – Missing or Incorrect Information
Know what the requirements are when opening a business account, to avoid the hassle of having to go back and forth with the missing requirements or documents.
Some small business entrepreneurs make the mistake of bringing erroneous paperwork during account opening. Each bank has different requirements though some basic IDs needed may be the same.
Check information first with a bank officer, or get a checklist of requirements personally or by going through the bank website.
Most banks require specific documents for business account set-up such as your tax ID, social security number, and other general information. Before you proceed with the transaction, make sure you have completed all the requirements so the process goes smoothly.
Error #2 – No Check Signing Authorities
Most business owners forget to plan for their business check signing requirements. They don’t make time to set up the task for check signing with balances and counter-checks in mind.
When you have a business partner or staff members, determine if your checks will require one or two authorized signatories. If your checks will require two signatures, will it only be for specified amounts or for all amounts? Ask yourself this question and make the decision before you open a business bank account to avoid the hassle of having to change it later.
Error #3 – Selecting the Wrong Bank
For someone new to the business, choosing the best bank that will help you effectively manage your capital may seem easy. However, when you select the wrong bank, it will have serious consequences for your business.
A fairly new bank that has not been established may put your business finances at a greater risk. On the other hand, a well-known bank may lead to issues with lending money for your business in the future. Choose a bank that offer services which are crucial for your business.
Nowadays, it’s difficult for businesses to get a credit card. Big banks have become stricter in processing applications prior to approval. Having a reliable business credit card can serve as a cash flow cushion whenever your customers delay payments, therefore helping preserve your purchasing power.
So before you decide on which bank you’ll entrust your business finances, it’s best to make a list of your future financial needs. This will help you make the best assessment of what your business will be getting out of the banking relationship.
Error #4 – Going Below the Minimum Balance
Avoid making the mistake of having to make unnecessary payments by allowing your balance to fall beyond the minimum. Set a higher amount than the minimum to keep as your goal to prevent this from happening. This way, you won’t position yourself of helping the bank earn more money at the expense of your company,
Some banks offer fee waivers monthly for business accounts whose balances stay above the minimum. You can take advantage of this and avoid incurring additional costs for your business.
Before choosing a bank account for your business, always keep the minimum monthly balance in mind to see if this is something you will be able to maintain on a monthly basis.
Opening a business bank account is not only about ensuring the best customer experience, improving your company’s online presence, and establishing a sense of authority that your business can prosper. It is also vital since it enables you to make and receive payments for your company, and efficiently manage your company’s finances in real time.
Selecting a business bank may not be as straightforward as your other business decisions. Good thing knowing about the four errors listed above will help you practice discernment and avoid making such mistakes.
Your patience, knowledge, insight, and passion will be needed for the success of your business. But don’t let yourself get drenched in that fiery desire to be successful. You also need to be wary of the things you need to avoid and take a practical approach in order to make sound business decisions.
