Woohoo!! You are a business owner! While that’s wonderful (and hopefully you’re doing something you love), you still need to make sure that your personal money and your business money do NOT commingle. It doesn’t matter if you’re a sole proprietor, or an LLC, you need to have a checking/savings for your personal transactions and a DIFFERENT checking/savings for your business transactions. There are a few things you should know regarding why you need to do this as well as a few tips.
Use a different bank for your business than your personal. This way if you transfer funds (if the bank allows) it’s not immediate and therefore not as easy to mix the two. Plus, it makes things easier to know which is for business vs personal especially if both accounts use your personal info (ie, as a sole proprietor). Same thing if you were to use a credit card for all of your business expenses – make sure that only business expenses are for that card (even if it’s a personal credit card).
And did you know that you do NOT necessarily need a “business” bank account? Especially if you are a sole proprietor! As long as you know that the account is meant for business only, that can be your “business” bank account – only the bank will believe it’s for personal. And check with the banks/credit unions you want to work with. Make sure they do not charge you any fees or that you have an account where the fee is waived if you do something such as have paperless statements (you can always print them) or use your debt card X number of times in a month. If a minimum balance is required, make sure that you will never need to touch that amount, even for emergencies.
Pay yourself first! Make sure that you are paying yourself a paycheck even if not through a payroll services, but as owner’s draw. This means you’ll need to have a game plan of how much you’re going to pay yourself each week, month, however often you need to make it happen as long as it’s consistent. This will not only help you manage your personal spending plan better (you’ll know how much you get paid), but you’ll have a better idea of what to budget for your business – and that’s an entire topic in of itself.
When it comes time for taxes, there’s no question which transactions are for personal or business because you’ve already been keeping them separate. And if you are serious about growing your business, you should be tracking your spending along that way too (not only once a year for tax time). This will help you in many ways to be able to make better educated financial decisions about your business. If you’re not sure where to start, or which bank works best, feel free to send me and email and let’s start separating your bank accounts NOW!