If you are thinking about starting your own business or a partnership with a friend or family member, it would be wise to think about all the financial steps needed to protect your personal assets from those of the business. It is not about trust-at least not at the beginning-it is about protecting your personal assets from whatever happens to the business now or in the future. Legally, you should set up a LLC or a corporation for your business. According to the courts, it is a separate identity from you as an individual, and it provides you protection that you wouldn’t have otherwise if you ever get sued. Keeping separate personal and business checking accounts is financially responsible and protects your personal assets.
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Why It’s a Bad Idea to Mingle Small-Business and Personal Banking
Entrepreneurs starting a business face many decisions about how to best set up and operationalize their company, including whether to register a business; where to set up space; and how to manage finances. For some, especially those operating as sole proprietors, it may seem easiest to use a checking account that’s already set up to manage finances, usually a personal checking account. In fact, according to a 2015 TD Bank survey of small business owners, 56 percent use a checking account for both business and personal finances, and 53 percent use a credit card similarly. Although comingling finances is a common practice, doing so could have consequences for a small business owner.
Using the same account understandably seems easy. It can save the time needed to find the correct paperwork and identification and a trip to the bank to open an account. Small business owners, especially those starting out, watch their spending and typically want to invest their hard-earned money into the business. That is why some opt to use a personal checking account for business purposes. Personal checking accounts typically have lower minimum balance requirements to avoid fees, but working with your bank usually can offer benefits such as relationship discounts or the ability to link accounts and combine funds to meet minimum balance requirements.
Concerns about fees and unfamiliar products preventing some small business owners from separating their personal and business finances
Clearly Better Business Checking, a new business checking account from Citizens Bank, has no monthly maintenance fee, no minimum balance requirement and offers up to 200 free check transactions per statement.
PROVIDENCE, R.I.–(BUSINESS WIRE)–When it comes to managing their finances, a quarter of small business owners are still keeping company money in the same account as their personal finances, according to a new survey released today from Citizens Bank. Despite the potential risks to their personal tax status and their future access to credit for their business, 26 percent of small business owners say they don’t have a separate account for their company.
Commingled personal and business funds can have harmful implications for both personal and company finances, warns Quincy Miller, President of Business Banking at Citizens Bank.
“Using a personal account for business finances is an easy mistake to make when starting out but it can quickly become a liability. For instance, paying personal expenses using business money or vice versa makes it far more difficult to get your accounting right at tax time,” Miller said. “You also want to have a separate account for business so you can build a financial history that you can later use to apply for credit and other products or services you may need to run your business. Finally, not having a separate account can make it too easy for companies to spend personal funds that may be needed for personal mortgage payments and other important household expenses.”
