Most small business owners tend to start funding their business from their personal savings account. It is therefore very common for owners to end up using their personal bank account for business purposes as well.
As time goes by and the business grows, they often do not see the point, or simply don’t have the time for substantial admin time that goes along with setting up a separate bank and credit card account.
It may only be a small adjustment, but creating a separate bank account for your small business can save you a lot of hassle down the line while providing you and your business with a number of benefits.
Efficient Tax Returns
Having a clear separation between your personal and business expenses will not only save you a lot of time during tax season but also help you to file more accurate returns.
If your personal and business expenses are mixed, you will have to go through every line item in your bank statement to determine which transactions are business expenses. This can take hours, or even days, and increases the likelihood of erroneously including or excluding items. Keeping separate accounts will streamline your records by allowing for taxable benefits and deductions to be easily identified.
Accurate Cash Flow Management
Although a bank balance is by no means the complete picture when it comes to a company’s cash flow, it can give business owners a good indication of their current cash flow situation, at least in the short-term.
So if you see that your business account is running a bit low, you know you need a cash injection and can, therefore, react quickly to ensure that happens. Similarly, you can easily identify if there is too much money lying dormant in the account that can be put to better use somewhere else.
However, if there is no separation between business and personal finances, it makes it much harder to manage and react quickly to cash flow situations. In addition, if you have to apply for funding, it is much easier to demonstrate your financial position to the lender when you have separate accounts. The clearer the financial records are, the easier it is for the credit provider to make a decision.
Streamlined Bookkeeping Processes
Small businesses will often postpone their bookkeeping until year-end, simply because there are so many other things to take care of in running the company during the year. Nonetheless, it is vital to make sure your books are accurate and up to date. When you are ready to tackle the process of bringing your books up-to-date, the last thing you need is to have to sift through months of bank accounts and receipts to distinguish between your personal and business transactions. By creating and using a separate business account, it becomes much easier to streamline your bookkeeping systems when year-end rolls around.
At Enkel, we focus on small to medium business back office services. From year-end catch up bookkeeping to payroll concierge services, we can help streamline your back office services to meet your company’s growing needs. Contact us to find out how we can help!