While it may not seem like at first, it's extremely important to keep separate accounts for business and personal transactions. In fact, it's recommended that you open a small business account before opening your doors to the public.
A business checking account is simple to open. Many financial institutions have affordable minimum deposit requirements, in the $25 to $50 range. This helps to ensure that there won't be any "money mix-ups" in the future. Keep reading to learn more about why it's best to maintain separate accounts.
Creating a Professional Image
In order to start and continue building a successful business, a professional image is a must. First and foremost, it gives your customers a sense of security. Many people are leery of writing checks out to an individual, as opposed to a business. Separate accounts also minimize the possibility of creditors making a claim against your personal assets.
Building Business Credit
Building business credit may not be something you think about right away. However, it's very important to do so, especially as the business grows. A business credit card gives you more borrowing power.
In the event that your personal credit score is low at the time you're starting your small business, don't give up. There are many ways to raise your score over time. You just need to be patient. Once you qualify for business credit card, you're able to deduct the interest as a business expense.
Protecting Personal Assets
If there is a time where Canada Revenue Agency has to review your business records,
you don't want to give them a reason to have to review your personal as well. The less they have to look at the better! If you are using both business and personal accounts interchangeably, CRA will look at both and question everything. Even if you have reported all your income properly the time, hassle and expense you pay to deal with CRA can be overwhelming. Taking the time and effort to open a business account might save you from a tough situation in the future.
Surviving Tax Season
Maintaining separate business and personal accounts help you survive the hectic tax season. If all of your finances are jumbled together, it makes it that much more difficult to sort things out for tax purposes. It makes it easier to do your bookkeeping and will save you time, stress and money.
It can be very beneficial to set money aside for taxes on a regular basis. This is especially true if you intend paying your taxes on a quarterly basis. Keeping money in a business account prevents you from having to tap into your personal account to pay CRA.
Now that you know the main reasons for keeping your small business transactions separate from your personal spending, your business has an even better chance of succeeding. This is a simple and cheap step that all business owners can do right off the bat to set them up for success.