When starting a business, opening a business bank account should be one of the first steps to take, because keeping separate records is just not enough. Business owners may choose then whether to keep their business and personal accounts in separate banks or to opt for one bank with competitive accounts for both areas of finances.
While today’s post might be a more relevant topic for smaller businesses and start-ups, its key ideas apply to every company. The key idea is that it is crucial to keep personal and business finances separate. Let’s define why it is so.
It can seem like an opportunity to save money when you start a business and not open a business bank account. However, it is important to take into account the time and energy it takes to keep track of which pile each transaction belongs to – your personal or business transactions. The number of entries of regular personal accounts can be overwhelming, so what happens then once the volume grows with the business transactions.
During tax season you must be prepared to separate and document all the transactions in great detail. While once you have a separate business account, you are able to just forward a clean record to your accountant. Keeping all the invoices and receipts in line with the bank statement entries brings you in perfect shape for the tax time.
Usually, the government revenue services do not inspect personal finances unless there is a specific premise. Yet they do audit businesses of all sizes. The process becomes much smoother as long as you can provide a clean record through a separate business account and all invoices and expense receipts for a backup. Instead, the audit by the revenue services can become a nightmare with mixed personal and business finances.
The requirement for business incorporates
If your business is incorporated, it is officially required that you need to open a separate business bank account. This rule applies for example in the US and the UK. No matter if it is a partnership, a corporation, once a business becomes a legal structure, it needs a business account. Moreover, in many countries, all legal types of businesses are required to have a business bank account in order to apply for a business loan.
Does your business need to accept bank card transactions or you have a retail business? You need a business bank account then. Likewise, when you write your check to suppliers, they and also the revenue services see that the checks are coming from a business. From this point of view, keeping your personal and business finances separate gives your organization a professional edge. Moreover, when personal and business expenses are not separated into two accounts, you can be personally liable for the actions of the business.
Of course, if you are freshly starting your business, opening a business bank account can be unfamiliar and overwhelming. Do not worry! COREDO supports opening various types of bank accounts at European banks.