Managing your finances is one of the challenges you'll face as a business owner, from overseeing profits and managing the inflow and outflow of business money to handling debts and other expenses. One of the best ways to tackle such an issue is by opening a separate bank account for your company.
Considering a limited liability company separates the business entity from its owners, which helps protect the members' personal assets, separating your business and personal finances also makes sense. And while this isn't required by law, having a separate bank account is still recommended, as doing so will enable you to track your business's finances better, creating a solid foundation for the success of your LLC.
Furthermore, in this post, we'll explore why you need a separate bank account for your company.
1. Simplify Your Business Accounting
Mixing your personal and business finances can complicate the accounting process, whether making deposits and withdrawals or managing income and expenses. You can best simplify such issues by opening a designated account for business transactions. You can better differentiate and track your personal and business transactions with separate bank accounts.
Having a separate bank account for your LLC also helps ensure that your bookkeeping remains correct and updated. Separating these business transactions means you no longer have to spend many hours reviewing your bank statements. You can open a US business bank account for non residents if you aren't an American native. Having such a bank account can act as a ledger and is helpful in various scenarios, such as:
- Calculating your business revenue
- Finding out your company's tax deductible
- Determining your expenses
A designated bank account also allows you to automate the bookkeeping process. You can use bookkeeping software to help you manage your budgeting, accounting, invoicing, and bill paying. By synchronizing your business bank account to such tools and software, you can be in a better position to check your company's financial health. You can easily check and review income, expenses, and business cash flow quarterly or monthly.
2. Helps Streamline Tax Computations
The tax filing process can be more complicated the larger your company. This problem can become more challenging without a separate business account. After all, going through a bank statement that combines personal and business transactions can be tedious. However, having an official bank account for your LLC can make it easier to calculate your taxes. Whether you do your taxes or hire an accountant, a separate account can help streamline the process since you can easily differentiate your profits and losses.
3. Makes Your Business Look More Professional
A separate bank account can help you enhance your company's professional image and overall brand. It also helps build your credibility, which goes a long way in helping you earn the trust of your customers, suppliers, and vendors.
In most cases, clients are likely to trust a business that asks them to make check payments to the company rather than a personal account for business transactions. The same can be said for suppliers and vendors. Making check payments from your official business bank account rather than personal can help establish you're a legitimate company working with them.
4. Boost Your Business Credit Score
Generally, your business needs to have a strong credit score to get better interest rate terms and lower the cost of business insurance. For one, it helps establish your creditworthiness. But you can't enjoy such a privilege if you combine your personal and business finances. As a result, accessing loans to expand business operations, such as hiring more staff, or relocating to a bigger office, could be more challenging. This is where opening a separate bank account for your LLC comes in.
Opening a separate bank account can help you access favorable loan terms. This is especially true since lenders have all your business credit history. They're thus in a better position to gauge your financial history and decide whether to give you access to a loan.
5. Safeguards You From Liability
While an LLC generally separates the business entity from its members or owners, offering you protection from company liabilities, mixing business and personal finances can put you at risk. Hence, the importance of drawing a line between you and your company. In this case, an official business account acts as a corporate veil, offering you the necessary protection. This way, should the company fails to pay debts, creditors will only go after the LLC's assets, not the owners' personal assets such as your car or home.
On the other hand, mixing personal and business finances can cause the court to decide to remove liability protection due to the failure to maintain the separate identities of the members and business owners and the company. In such cases, business owners will likely suffer personal financial loss should lenders or creditors take action for unpaid debts or loans.
6. Easily Monitor Business Performance
Knowing how to manage your company's finances goes a long way in ensuring the success and continuity of your business. It includes having a good idea of the money coming in and out of your business. This way, you can better plan and track how you use business resources and how well your company performs financially.
However, monitoring the money flow of your business can be trickier if you're using a single bank account for personal and business transactions. Hence, the need to open a bank account separate from personal finances.
A different business bank account is even more beneficial, especially as your company grows and you expect a lot of business transactions. This way, you can avoid the trouble of going through each transaction individually to identify personal or business expenses and monitor your business's profitability more efficiently.
Part of running a company includes managing business finances properly. After all, finances are the bloodline of any organization. And one of the best ways to strategically monitor and oversee your LLC's financial health is by having an official business bank account instead of using your personal account.
This post has outlined various reasons why opening a bank account is the best thing you can do for your business.