Where do I start? - Setting up for Success
How many times have you decided to keep up with your finances (personal or business), just to discover two months later that you still have a pile of receipts you haven’t gotten around to recording? One of the biggest mistakes small business owners make is resolving to keep up with the books without creating a system to support them.
The first step in creating a great financial system is setting up a bank account just for your business. It’s not illegal to mix business and personal accounts (for sole proprietors), but separating the two makes record keeping immensely easier and reduces the chance of errors.
Here are just a few of the advantages of separating your business and personal banking:
Fewer tax-related headaches
The IRS has specific guidelines to determine if expenses are related to a business or a hobby. However, putting all your business transactions through your personal account may give the impression that it is a hobby. When tax time arrives, you will have a very hard time separating personal transactions from your business. The easiest way to have an accurate, complete, and clear record of income and deductions is to have separate accounts. It will also help you ensure that you don’t miss any deductions you are entitled to, which helps reduce the taxes you must pay.
When a client is paying you, who do you tell them to make the check out to? Many clients may see you as less professional if you give them your name, rather than your business. Having a bank account just for your business gives you one more touch of professionalism to offer to your clients. It conveys that you are a serious business and that you plan to be around for a long time.
You will be amazed how much easier bookkeeping will be if you separate your business and personal banking. You will be able to download your business transactions directly into your bookkeeping system, giving you a bettle handle on your profits and cash flow.
Download this checklist to help you search for the right bank account. Use the printable to get an idea of what is important to your business and see what bank best matches what you need.
Next week we will dive into basic techniques for analyzing your financial data, so you can understand where your business currently stands and decide where you want it to go. Remember, you can always send me an email if you have questions about your bookkeeping system.