Money management is one of the most difficult tasks for most business owners. In the early days of your business, you may experience a very uneven income stream – even utilizing personal funds for startup expenses and operating at a loss. However, as your business grows, it may become your primary source of income. Ultimately, it can become easy for your personal and business finances to become intertwined; however, it is very important to keep the two separated.
The most important reason for separating business and personal finances is for tax reasons. As a business owner, you may be entitled to certain deductions for your business, such as expenses for a home-office or mileage. Many of these deductions are not available to individual tax payers, but only to businesses. Separating your finances is a clean way to ensure you properly follow tax laws and receive all tax advantages you are entitled as an owner.
Another important reason to keep finances separate is record keeping. If you need to obtain financing for a business loan or line of credit, you may be required to show bank statements reflecting business liquidity. Most banks offer business accounts with reporting features, so you can easily prepare financial statements and other business performance reports. Having separation in your accounts will also make it much easier to determine which income and expenses belong to the business.
The easiest way to separate your business and personal finances is to open a business bank account. Depending on your type of business entity, the documentation required by the bank could be little to none. Most banks offer business accounts with options for paying no monthly fees, but fees may vary based on the volume of activity in your account.
Hector Zatarain is the Regional Manager of Small Business Banking for U.S. Bank. For more information on US Bank and its services in San Diego call Jay Henslee, San Diego/Inland Empire Sales Manager of Small Business Banking for US Bank, at (619) 744-2195.