If you’ve decided to start your own small business or even a side hustle, eventually you’re going to have to spend some money associated with your business. And this brings up a very fun area of figuring out. When should you open a business bank account, versus simply using your own personal accounts to be able to buy things for your business?
It’s actually a really important question to be asking and figuring out the implications, the risks and the timing is See, with all of these decisions is really important because most people make the decision to open a business bank account way too late. And it ends up causing the massive amounts of headaches down the road.
So is it important to keep your business transaction separate from your personal transactions? Absolutely. It’s a critical. It’s one of those things that’s going to cause you a massive amount of headache when it comes to the end of the year, when it comes to doing any of your bookkeeping, or any of your accounting, you’re going to need to be able to differentiate, what you spent for personal purposes, with what you spent for business. So, think of it this way, if you had a pail of water and you put a few drops of blue food coloring in on one side, which was maybe your personal accounts and then a few drops of red food coloring on the other side. It’s all going to mix together and it’s all going to kind of swirl into this whole commingled purple, combined set of transactions. What you really need is some way of keeping the account separate. So a really simple way is to actually open a separate business versus personal bank account. If it’s not feasible for you, even using a personal account such as a personal credit card that you use exclusively for your business can help you quite a bit along the way, if you’re kind of not quite ready to go and create a dedicated business account.
One of the reasons why people are sometimes reluctant to be able to set up a business bank account, or some of the fees associated with it. So whenever you’re trying to decide what bank you should choose. Of course, any of the banks will tell you to do, consider based on customer service and your relationship with your banker and etc. But really the bank fees associated with opening a business bank account are not trivial. Sometimes they can be in this, $60, a month and and above range. So that can be something that can be a bit of a barrier whenever you’re just in those very, very early stages and deciding how serious your business is.
So kind of a bit of a mid-range workaround, is to use a dedicated The card and a dedicated account set up to be able to collect funds and that gives you two different spots where you can very easily aggregate. All the money going out the door from your business and all the money going in. The other reason that this is really important is whenever you are running a business. It is critical for you to really know your numbers and be on top of your numbers so you can make decisions going forward in terms of is this business worth pursuing further. Am I becoming profitable? What should I put more time and effort into to it. All of those things become really, really muddy. Whenever you’re blending your personal and business transactions all together. So that’s another really important reason in addition to all of the bookkeeping and accounting of reasons. It’s just for your own insight as a business owner. Why you want to look into it. When should you actually make the leap to opening a business bank account? Well, I think, really from day one, you need to make the leap into keeping your business accounts separate from your personal accounts. You can get around it for some time using a separate credit card and using a separate personal account that you carve out exclusively for your business. By the time, you’re ready to really set up a dedicated business account. Definitely, whenever you’re starting to incur payroll transactions, meaning when you’re starting to bring someone on board onto your different business, whenever you’re really starting to realize that this is a business that you’re going to want to pursue for the long term. It will probably make more sense to actually get that set up. A lot of things will become easier down the road because when you have a dedicated business account, you can set up a lot of your tax processing. A lot of the vendors that you need to be able to pay a lot of your payroll. You can really set up a lot of those things for direct deposit. So that your business bank account can be set up to run automatically and reducing the administrative burden, but at the very, very least.
Before you spend even a dollar on your business, make sure you have a way of tracking your personal versus your business account.