Have you ever considered the importance of having business and personal finances separated? I will explain why in this article.
Like many business owners, you most likely started your business with savings. You probably did not bother to open a separate bank account for your business. However, mixing business and personal finances is never a good idea.
Once you start making money and accumulating expenses, muddying the water with your finances can make the already stressful task of running a business even more difficult.
While it may seem more straightforward to keep your personal and business funds in one account, you will eventually find out that separating both accounts will save you time when reconciling your accounts.
Here are the four reasons why you should consider keeping your accounts separated.
- Establishes a business image and credibility
There is more to establishing a credible business than logos and brand colours. It would be best if you operated in a way that shows customers and clients that they can trust you.
Using a bonafide business account from which you pay vendors and receive payments from customers legitimises your business and tells people you are a serious business owner.
- Easily track your business cash flow.
Separating your business and personal finances makes it easier to get an accurate picture of your business cash flow. It will be easier to do your bookkeeping when you have a single business account statement to review. This can also help you better understand how your business is doing at any particular moment and to forecast your future cash flow.
- Access to business-only financial services and more
Obtaining loans for your business is vital to growing it, and a separate business account works to your advantage in lending.
Having your finances mingled is an immediate red flag to a potential lender. The lender won’t be able to get a good read on your current cash flow, revenue, and other financial factors, which are all significant clues for determining your potential to pay back the loan.
- Funds mismanagement
If your business is not doing well, you will be more likely to utilise personal resources from your bank account to make up for it. On the other hand, you might also find yourself using business money to pay for personal expenses. This can negatively affect your business and your chances of success.
Using one account for everything in the short run might seem more straightforward, but you are costing yourself money and exposing yourself to unnecessary risk in the long run.
Your professional image depends on how you conduct your business. Keeping your business operations above board shows people you know what you’re doing so you can earn their trust. Separating your business expenses from your personal expenses is the best way to set yourself up for success.