Small Business

6 Reasons to Separate Your Business and Personal Finances

Name: Education about how to save money in the long run by understanding the difference between 'cheap' and 'inexpensive'
Brand: Axos Bank

Aug 08, 2024

Starting a business or managing an existing one can be overwhelming. While it might be tempting to simplify your financial management by using your personal bank account for business transactions, this could cause problems in the long run.

Think about it like this: You can keep your kitchen items in the bedroom . But it will make cooking a lot more complicated. So obviously, you’re going to keep your kitchen items in the kitchen and your bedroom items in the bedroom. It makes life easier.

Treat your business and personal finances the same. There are several reasons to open a business bank account and keep your business cash flow separate from your personal finances.

1. Take Advantage of Tax Benefits

During tax season, having separate business and personal accounts not only saves you time but also saves you from an unintentional IRS audit. Solely relying on a personal account makes it challenging to deduct business expenses correctly, which can affect your tax liabilities.

And using a personal account increases the risk of attracting IRS audits to your personal finances, just because of the association. To lower these risks and maximize your tax benefits, it's essential to maintain separate financial accounts.

2. Establish Professionalism

Maintaining a business bank account doesn’t just solidify your professionalism, it also enables smooth day-to-day operations. Through a dedicated business account, you can:

Empower employees to make purchases on behalf of the business.
Process customer credit and debit card payments.
Receive client checks directly to your business.

The traits of a trusted, successful business are passion and process. If you’ve made it here, you already have the passion. Taking the small step to keep your financial accounts separate can make all the difference for you and your customers.

3. Build Credit for Your Business

While it’s great to have a strong personal credit history, it's equally important to build good business credit. If you need a loan for your business, lenders and financial institutions often look at your business's credit when considering funding options.

By making large purchases and consistently managing finances in your business account, you can build a positive credit history for your business. With that, you could increase your purchasing power, enhance your ability to qualify for loans, and open doors to more financial opportunities that support your business growth.

4. Track Your Business Cash Flow

To make informed financial decisions and better your business outcomes, keeping a clear record of your business expenses is key. It can get confusing to have your lunch charge lumped in with your contractor withdrawal. Good news — it’s an easily avoidable problem.

You may even choose to have multiple business bank accounts to stay organized and simplify your bookkeeping. Opening a separate account for payroll expenses can streamline your cost projections as your business grows.

Depending on your financial goals, multiple accounts can make it easier for you to keep track of your cash flow and overhead while avoiding bank fees.

Simplify the process of tracking and analyzing your business’ financial success with a separate business bank account. With the account, you can streamline your financial tracking with business accounting software.

5. Keep Your Assets Secure

You’ll need to protect your personal assets is key in the event of business struggles. No matter how your business is structured — sole proprietorship, partnership, or limited liability company — if legal problems arise, you could be personally liable for the financial obligations of your business.

This separation shows the business is a separate legal entity, distinct from your personal property and finances. It safeguards your personal wealth and ensures that your hard-earned assets are not touched if your business encounters financial problems.

6. Increase Financial Stability

By opening a dedicated business bank account, you set the foundation for financial stability, credibility, and growth. And many accounts have features that appeal to business owners, like high interest rates and ATM reimbursements.

A separate business account can help you avoid fees and select features that will benefit your business. Keeping your business finances in order is essential for your small business’ longevity and success.

Make the Separation Simple

Take the first step toward separating your business and personal finances by opening an Axos Small Business Bank account. When business is busy, you don’t have to be. Start enjoying the benefits and peace of mind that come with efficient financial management.