Your Micro Business Needs it's Own Dedicated Bank Account

A lot of micro business owners do business transactions using their personal accounts - savings or current as the case may be. Every transaction is initiated and approved by the boss alone. Such business owners muddle business with personal affairs.

Every business no matter how small has several receivables (income) and payables (expenses). If business funds are operated with a personal account, there will be a high possibility of confusing which deposits, withdrawals or transfers are business related, and which are personal. This leads to accounting, bills, and tax worries, especially at the end of the year.

This post presents some of the essential reasons why small businesses of all forms (startups, sole-proprietorship, contracting firm, etc) should have account(s) dedicated to their businesses. You may care less about how much you spend on personal needs, but you definitely need to have a record of financial transactions in your business, as this will help you in measuring your growth.

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For Tracking Business Expenses

One of the major reasons why you should separate personal accounts from business accounts is that it will help you to always know which expenses are business related. It enables you to track financial transactions within the business, thereby making you accountable. Furthermore, many business expenses are tax deductible; operating a separate account for business will therefore help you to identify those deductions at the right time.

It is Necessary For Minimizing Bookkeeping Errors

No matter what method of record keeping you adopt, be it simple (income/expenditure or profit and loss records) or a more complex record-keeping system, a separate account will make it easy and quick for you to monitor your account on a periodic basis. Mingling business and personal transactions in the same account will only make record keeping difficult or even impossible in some cases. Whenever you try to fish out business from personal transactions in the same account for the purpose of record keeping, it will come with a lot of headaches and errors.

A Dedicated Business Account Enables Audit Preparation

Contrary to many people's ideas, micro businesses are also subject to audits. Keeping a separate business account will not only help you keep better financial records, it will also make your business fit for an audit, or better still, prevent you from needing one.

Access to Credit and Loan Facilities

When it is time to expand your business, or you are presented with a contract that your present financial status cannot handle, then it is time to apply for a loan. Financial institutions or lenders look at the debt-to-income ratio of your business when assessing their risk. Without a clearly stated cash flow record, you might be denied the opportunity of accessing the loan.

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Corporate Veil Preservation

The corporate veil defends the owners of a business from personal liability or personal debts or negligence of the business. However, if you are seen to be combining personal and business funds, or diverting business assets into personal use, you might lose this protection. Without the corporate veil, you are exposing all your personal assets to a significant amount of risk.

As you grow your micro business, your financial services and banking records also grow. You might begin to have the need to access business loans, credit cards, and so on. At this point, operating a commercial account for your business will be one of the most important decisions you will make in building a valuable banking or corporate relationship for the business. Do not wait for that occurrence before you start running around. Open a business account today!