As a new start-up or new part time business owner do not fall into the bad habit of co-mingling your finances with your personal money. While it may be the easiest, most convenient and cheapest way of operating, it can have its drawbacks – especially further down the line. As a new business owner you need treat your business as a business, regardless of whether it’s a part-time venture or not; while setting up a separate bank account could mean additional bank fees and expenses, if you don’t you could be storing up a lot of hassle for yourself in the future.
All our clients will vouch that keeping their business spending completely separate from their personal account ensures manageability.
If you’re still convinced that incorporating your business finances with your personal money is a good idea, here are some reasons why you should think again.
- Organisational Simplicity
- Having a business bank account allows you to organize your business more effectively. It’s easy to track what money is coming in and what money is going out and your accounting is much simpler when you have a separate business bank account.
- Tax Compliance
- In an audit, for example, the IR may look at your business records to determine whether there is an audit trail, having a separate bank account can greatly assist in the smooth running of the audit.
- As most business owners operate only one bank account, experience has shown us that this is a very dangerous practice and is the main contributing factor to unpaid taxes (GST, PAYE and income tax).
- Why is this? We believe that it is what we teach in the Profit First Methodology as the entity resorting to “bank balance accounting.” This is where the bank balance is checked every day and financial decisions are made based upon what is seen. Per Parkinson’s Law, we consume what we see in our bank account which can cause the result of when it comes time to pay the GST, PAYE and income tax there is insufficient funds in the bank account to meet this obligation.
- How can I ensure that I can pay my taxes, on time, every time?
- If your business operates from its own, separate business account, you will be demonstrating complete professionalism too – definitely a plus point when working with clients and attracting new business. Remember, your business is a business, no matter how big it is, and treating it as such will give it the best chance of flourishing.
- When you have a business bank account and your personal finances are separate from your business finances, it’s much easier to determine how your business is performing from a profitability standpoint. You can easily calculate income and expenses to determine if your business has positive cash flow, which means that your business is profitable and making money.
- No matter what business you’re in or how it’s structured, it’s wise to establish a business bank account. Setting up a business bank account is a fairly simple process that is well worth the effort.
- While it may be tempting to start your new business venture without looking at the need for a bank account dedicated to your business activity, this might not be the smartest of choices. As your business grows and expands, it’s extremely important to separate your business finances from your personal, day-to-day living.
Thank you for taking the time to read this. I trust that the above has been informative and if there is any aspect that you wish to discuss further please contact us.
Disclaimer: This publication has been carefully prepared, but it has been written in general terms only. The publication should not be relied upon to provide specific information without also obtaining appropriate professional advice after detailed examination of your particular situation.