Are you still using your personal bank account for your business?
Are you still using your personal bank account for your business?
Whether you work from home or own a multi-million dollar company, there are numerous reasons to separate personal and business finances. Yet, business owners still make the mistake of using a personal bank account for their business. Although having two bank accounts appears inconvenient, you shouldn't use a personal account for your business finances primarily because it can affect your legal liability.
In fact, one of the first steps to owning a business should be opening a business bank account, in addition to a personal bank account. Most banks now offer free business checking accounts so cost shouldn't be an issue.
When you set up an LLC or a corporation, one of the primary advantages of doing so is the legal liability protection it affords you. The bottom line: the courts consider the corporation a separate entity from the individuals who own it. For example, when you do business as a corporation, if the corporation gets sued, the party suing the corporation cannot sue you as an individual, unless of course you have personally guaranteed something. But, if you mingle your finances, a court can potentially go after the individual running the company because it looks less like you are running a separate entity and more like you and the corporation are one and the same.
It does not matter if your business is run out of a home office, is strictly Web-based, or is a "brick and mortar" office location, a separate business account has its advantages. Regardless of whether you set up an LLC, Corporation or Partnership, maintaining a business bank account will help you avoid unnecessary hassles.
For example, using a separate business account makes it much easier come tax time, as you will need to file your business income and expenses separately from your personal transactions. Differentiating personal expenses from business expenses when they are in the same account can be time consuming and cumbersome.
Bryan Greenwood from Washington Mutual¨ Small Business Banking notes, "Keeping separate accounts (business and personal) is always the smart thing to do. Many business owners are so busy starting, running and growing their businesses, it is always better to develop good business habits early, especially when it comes to finances and record keeping." You can email firstname.lastname@example.org to learn more about free business checking accounts and other small business banking services.
In addition, the IRS has stringent rules for those who work from home about what can be deducted as "business expenses." If you use your personal account for business use, the IRS may frown upon those deductions, even if they are legitimate business expenses.
Besides IRS auditing issues, using a business account also adds a note of professionalism to your company. If a client receives a personal check for services rendered, they may not take you as seriously as you would like. However, a professional check from a business account will convey professionalism and, more importantly, confidence.
Added Convenience - the Business Credit Card
One of the best ways to make sure you distinguish between personal and business expenses is by using a separate business credit card. Expense reporting can be a daunting, yet crucial task for small businesses, and credit card statements can be a valuable asset when monitoring business spending.
In addition to the obvious reason of deducting business expenses with ease, using a business credit card gives businesses an additional line of credit that may not be an option from a traditional bank. Not only can businesses extend their cash flow to pay for business supplies, vendor services, and other ongoing payments; business credit cards can be used so that monies do not come out of the business's cash accounts. As soon as a customer pays his or her bill, the credit card bill can be paid.
Many business credit cards also come with business "perks," such as frequent travel discounts, higher credit limits, longer billing cycles, and lower interest rates. For example, the American Express¨ Business Gold Rewards Card is very popular among entrepreneurs. You can earn up to 40,000 bonus membership rewards points during the first year, enough for one round-trip free domestic ticket.
In addition, some business cards give business rewards, such as cash back options on the purchase of office supplies, while others offer flexibility to businesses that may not be offered with a standard, personal credit card. Finally, credit cards have zero liability for fraudulent charges, giving businesses added protection if their credit is used by an unauthorized party.
Processing Credit Cards
With the ability to shop on-line and run in and out of a store in the blink of a Visa swipe, business owners are realizing that customers hardly ever carry cash anymore. So what happens when a potential customer comes into your small business with only a MasterCard, but you only take cash? What if a customer searches for companies on-line with your specific product, but doesn't find you because you lack a Web site with on-line shopping? This is where a reputable Merchant Account Service is key.
A merchant account is a credit card business service set up by a financial institution, allowing businesses to accept credit cards as payment for goods or services. These companies process funds from respective credit card companies and then transfer the collected funds into the business's checking account.
There are two types of merchant accounts: traditional merchant accounts and on-line merchant accounts. Traditional merchant accounts authorize and transmit credit card payments using a credit card machine (swipe terminal), which is installed at the business. On-line merchant accounts accept, authorize and process credit card transactions securely over the Internet.
Like any type of business partnership, merchant account providers should be researched thoroughly. The best way to find a suitable merchant account is to shop around and compare merchant accounting service companies, as many of them may try to take advantage of unknowing business owners with hidden fees, such as chargeback, pass through, minimum or termination fees.
Be sure to read any contractual agreement extensively before signing on the dotted line, as some contracts may carry a non-cancellation clause. Be sure to read any contractual agreement extensively before signing on the dotted line, as some contracts may carry a non-cancellation clause. First Data offers a free consultation (or account evaluation) for interested entrepreneurs. Click here to learn more about accepting credit cards for your business.
Setting Up Accounting
Determining whether you will need a business bank account, credit card and merchant account service is imperative, but setting up the accounting for the business is also an important step. You have probably already determined what type of business you will be running, whether it is a corporation, sole proprietorship, or partnership. If not, this must be established, as your business structure will determine which type of accounting will be best suitable for your business' needs.
Once the business structure is established, the next step is to clarify the business' spending requirements. How many checks will you be depositing each week? How many checks are written? Does your company need the ability to deposit large amounts of cash? Is in-person banking a priority or will you be making deposits after hours via an automatic telling machine? These are just some of the questions that need to be answered in order to find out which type of bank accounting is right for you.
With each of the above, finding a reputable company is imperative, whether it is a bank, credit card company or a merchant account. Select a company that is convenient to both your business and your lifestyle. In addition, be sure to choose the most appropriate type of account for your particular business.
Are you ready to get started protecting your business, Click here to find out more.