One of the main questions small businesses ask themselves is whether they need to bother separating their business and personal accounts. After all, it doesn’t make much difference, right?
WRONG! Whilst it may sound too obvious to say the clue’s in the name, it really is in these circumstances!
Can I use my personal bank account for my business?
From time to time business owners can use their personal accounts for business, but this heavily depends on the type of business they have.
For example, if you are a sole trader, you are not required by law to have a business bank account so you could technically use your personal account for both business and personal transactions.
Whilst this is the case, it doesn’t mean you are better off sticking to one bank account just because you don’t have to create a separate one. On the contrary, having a different account for your business and personal spending provides so many benefits.
So what are the benefits?
Regardless of whether it’s a requirement or not, there are also various reasons why it would benefit you and your business to separate your business and personal finances.
Who bought what for where?
If your business and personal finances were combined, it would be difficult to evidence which transaction belongs to which entity.
Was the milk you bought for the office, or your home? Did your team or your children use the stationary you bought? Who knows…
Brand image
Alongside some financial benefits, having a dedicated business account can enhance your brand image. After all, buying a product or service from a business whose bank details don’t align with the name of the business could seem unprofessional and untrustworthy.
Improved cash flow
A feature of most business bank accounts is the ability to create multiple checking accounts making it easier to manage your cash flow through budgeting.
As improved cash flow is one of the main ingredients of a successful business, it would be a wasted opportunity not to take advantage of this feature.
Time is money
We’ve all heard the phrase for a reason. Businesses can waste a lot of time sorting out finances and separating transactions if business and personal spending are combined in one account. Unless you are regularly on top of your transactions, it can be difficult to remember what’s what when you’re sorting through your expenses come to the end of the financial year.
Whenever anyone does something manually, they are creating room for more errors – everyone is human after all! – so why risk it?
Don’t forget about your employees
As a business owner, there will likely come a time when you’ll need to give your employees access to business funds to pay a bill or make a purchase on behalf of the business.
The likelihood is, you wouldn’t want them to be using your personal bank account to do this, thus reinforcing the point that a separate bank account is needed for your business.
Facing an enquiry
If you were selected to face an enquiry – either at random or to confirm your tax return was accurate – you are likely to receive a request for years worth of financial information to ensure tax compliance.
Although having a separate account for your business finances won’t prevent this from happening, it will likely streamline the process as there won’t be any co-mingling of personal and business funds.
Can we help?
Our team is always open to offering advice should you need it. All you have to do is give us a call on 01952 216872 or email info@kewaccountants.co.uk to speak to us.
