If you are going right on through all the difficulties and steps to start a new business, it may be tempting to defer opening a company bank account. After all, you will find so many other critical tasks to the operation—it’s okay to ignore that one, right? Wrong! Opening a company account can help you in ways you wouldn’t expect, from simplifying your accounting to establishing your business’s credit history to make it easier to get a loan. Listed below are seven crucial reasons to open a company bank account you’ll need to consider.
Make Tax Preparation Easier
Having a bank account helps automate your tax prep. It’s so much easier if all your business income and expenses flow throughout your bank account as you or your accountant can link your business bank account transactions with tax preparation software. Like that, whether you hire a tax preparer or you do it yourself, you will save countless hours and headaches when wanting to parse throughout your financials come tax time.
Automate Your Bookkeeping
Bookkeeping software can help you manage bill paying, accounting, budgeting, and invoicing, making your business’s finances a much easier affair. With a company bank account keeping your personal and business finances separate, you can sync your bank account with your bookkeeping software. This effectively automates more or less all your bookkeeping!
Protect Yourself from Business Debt Liability
One benefit of establishing your business as a corporation or perhaps a limited liability company (LLC) is the fact that, should your company become unable to pay a debt, the creditor can’t legally come after your assets if you did something to incur liability, such as break the law. However, if you mix your business assets with your purchases by, for example, not keeping a different business bank account, then your liability protection is nil. This implies a judge could hold you personally liable for business debts incurred. Based on the case, you could lose whatever you own. This isn’t an enjoyable incentive to open a company bank account, but it’s a vitally important anyone to consider.
Establish Business Credit
By having a business account at a local bank, you can set up a relationship for credit purposes. Lenders will work with a business’s credit history when determining whether to loan the business money. In the case that you wish to remove a loan to finance equipment, hire more employees, proceed to a larger space, or other ways you could decide to expand your business, a favorable business credit history will help you get a loan with a good interest rate. Without the use of credit, in the form of bank statements, a credit card, or a distinct honor, it could not be easy to produce purchases on behalf of your business. With a good relationship and building credit with your bank, it’s much easier to acquire a company credit card with a good interest rate.
Show the IRS Your Business Isn’t a Hobby.
To legally count business expenses as tax deductions, your business should be legitimate and not a hobby. To legitimize your business, the IRS must have the ability to determine if you are setting up the time and effort to produce your business profitable or not.