If you run a small business, you should have a business banking account that's separate from your personal banking account. Typically, small businesses with several employees and lots of payroll obligations have already taken this step, but even if you're a freelancer or independent contractor with no employees you can also benefit from business checking.
Of course, business owners between these two extremes should also have a business account. Here are the top reasons why you need one.
1. Better Organization
When you have your business and personal expenses muddled up in the same account, organization is challenging. It can be hard to look through your expenses and figure out which ones are for work and which are for personal reasons. Financial organization is critical for a range of business pursuits.
2. Easier at Tax Time
One of the key reasons you need your business financial records to be well organized is because of taxes. At tax time, you have to report all of the revenue collected by your business. If all of the funds you collect throughout the year go straight into your business banking account, you just need to pull up a list of your deposits and you have the information you need.
On top of that, you also get to deduct your expenses from your income. If you have all those expenses grouped together in your business banking records, that makes tax time easier. If you're just dealing with a stack of paper receipts and some records from an account that is a mixture of personal and business expenses, you may overlook a possible deduction. That can unnecessarily increase your tax liability.
3. Integration With Accounting Software
If you have the right accounting software, you can link your business banking account with your accounting software. That way, deposits and expenses are uploaded automatically into your accounting software. That helps you save time on manual entry.
On the other hand, if you have personal and business expenses going through the same account, you cannot link your accounting software. If you do, your records will reflect business and personal expenses, and that won't be remotely accurate in terms of business finances.
4. Helpful for Loan Applications
Almost all business owners need extra capital once in awhile, and whether you apply for a loan from a bank or an alternative lender, they will want to see your financial records. When you have a business banking account, you can easily share the details lenders want to see.
5. Useful for Projections
Additionally, when you have all that information easily accessible, that makes it easier to make financial projections about your business. For instance, if you have deposits and withdrawals, you also have clear estimates on your cash flow numbers throughout various time periods. Then, you can use that information to make projections on how your cash flow is likely to be in future time periods.
6. Ability to Measure Growth
You can also take information from different time periods and compare and contrast those numbers to see how your business is growing. For example, if you want to see how much your business has improved over changed over the last year, you can take numbers from one quarter of the previous year and compare that to numbers from the same quarter from the current year.
7. Special Offers
Finally, when it comes to business banking, many banks offer special features for their business clients. For instance, they may let you authorize multiple account users with different levels of access. They may have tools that help make payroll easier, or they may have special business loan offers for their business banking clients.