Why you need to separate your business and personal finances

One of the first actions I recommend that my new clients take is to set up a bank account that is solely for their business transactions. If they’ve been running their business from their personal account for a while this recommendation can be met with some resistance!

Why do I need to bother with that? I’ll be charged extra fees – is it really worth it?

Separating your business and personal finances is an essential part of building strong financial foundations. Here are my key reasons why . .

Key reasons to have a business bank account

1. You’ll save money

By having an account that only contains your business transactions you’ll save money as your accountant or bookkeeper won’t need to sort through what relates to your personal life and what relates to your business.

Even though you may have agreed a monthly fee with your accountant or bookkeeper, that fee will be based on your business being organised in a certain way. If you have the digital equivalent of a shoe box full of receipts, you’re going to end up being charged for the extra work involved in splitting those transactions out.

2. You’ll save time

Maintaining up to date financial records usually involves importing the transactions from your bank statement into your chosen software.

If your personal and business transactions are intermingled then you’ll have to spend extra time either importing all of your transactions, and then deleting the personal ones, or manually entering your business transactions.

When you have a business bank account it’s a simple case of importing everything from that account, knowing that it's all relevant.

You’ll also save time when it comes to having your tax return done.

3. Your tax return will be easier to do (which saves time or money)

When you get to tax time your accountant, book keeper or tax agent is going to need to know that the transactions in your book keeping software match those in your bank statements.

With a business bank account this will be an easy task for them, but if your transactions are a combination of business and personal it’s going to take them more time, which is going to cost you more money.

If you’re still doing your own tax return then you're going to need to carry out the same kind of checks by trawling through your bank statements for the year. It is all too easy to miss business transactions when you’re checking back through a year's worth of statements.

It can also be easy to make errors in claiming expenses that aren’t tax deductible or to miss business expenses that you could deduct, because there are too many transactions mixed together

4. Day to day running of your business will be easier

We all want the day to day running of our businesses to be smooth and easy. Yet when you don’t have a separate business bank account confusion can easily result.

Can you quickly see how much of your bank balance relates to the tax that you need to pay? When the payments that you need to set aside for provisional tax, end of year tax and GST are sitting in your personal account it’s too easy to think you have more money to spend that you actually do.

If you're not used to being disciplined with your spending habits it's all too easy to spend money that you should be setting aside for future expenses or investment, e.g. a new laptop or super payments, when your transactions are combined.

By separating out your business and personal finances you’ll be saving yourself time, money and possible future financial headaches.

Taking steps to create strong financial foundations in your business can sometimes feel overwhelming and can trigger mindset wobbles which is why it’s important to have a trusted advisor by your side as you commit to getting serious about the way you run your business.

Book in a 20-minute call with me to discuss how I can provide support to help you achieve your goals.