Between June and September of 2020, the number of startups increased 67% compared to the previous third-quarter high set in 2018. Many of these businesses began as a side gig set up in an individual’s garage or basement to create an additional income stream. But there is a funny thing about even the smallest side business. They can grow rapidly.
That’s why it’s important to start your small business out on a firm foundation with a separate business checking account. Here is why it’s important to set your financial house in order as you start a new business venture.
Business Versus Personal Checking Accounts and Why It Matters
When a business begins as a small operation, particularly one that is set up as a sole proprietorship, it may seem easier to run expenses and income through a personal checking account, but there are a number of problems with this approach.
First, if you’re paying for business expenses from a personal checking account, you may lack a clear view of your business’ financial situation. That’s because it becomes more difficult to isolate and accurately categorize your company’s expenses. Without a sound understanding of cash flow, you could be limiting business growth.
You could also run into trouble with the IRS. Combing through multiple lines of transactions to isolate business expenses and income means you’ll spend more time preparing taxes, increasing the chances of filing late or making errors. Even honest mistakes on your tax return could cost you in penalties down the road.
Without an established business checking account, you’re also impeding your ability to grow. For instance, banks look for solid financial practices and banking history when evaluating loan applicants. Unless you have a business checking account, you’ll be unable to demonstrate an accurate financial picture for your company, and funding may be more difficult to secure.
You could also be damaging your professional credibility without a separate checking account for your company. By continuing to pay suppliers from your personal checking account, you’re reinforcing the idea that your business is only a small side-hustle, making it harder to secure more favorable contracts from both vendors and buyers in the future.
The Advantages of a Business Checking Account and How to Find the Right One
Often small business owners put off opening a checking account due to time constraints or a fear that they’ll pay higher fees than those associated with a personal account. Fortunately, you can offset these concerns by establishing a relationship with the right bank.
To find the institution that best meets your needs, start with a list of must-haves. Do you need a branch that is close to your place of business, ATMs, online banking or additional services?
Determine the most critical attributes and then research financial institutions in your area to compare their offerings and fee structures. You might be pleasantly surprised to find that opening a business checking account can be relatively easy.
FNBO, for instance, offers a free checking account for businesses who process less than 150 transactions a month, and very low fees for larger entities. FNBO also offers Premium Business Checking for companies with a larger volume of transactions. With options like these, entrepreneurs have the opportunity to get their feet solidly on the ground as a startup and more easily grow their operation as time goes on.
Once you have a business account established, financial management becomes much easier. By linking your account with accounting software, you can have expenses and income automatically imported and categorized, saving you time and money in fees from your accountant.
With established accounting processes in place, it becomes easier to manage and grow your business operation. With available opportunities like these, opening a business checking account may be one of the most important things you do as you start your entrepreneurial venture.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.