If you were to check in with your accountant or financial advisor, chances are he or she would recommend having a separate business account for your business and one for your personal or household finances. As a matter of fact, with many small businesses, direct sales, franchises, distributorships, etc.–a separate bank account is not just recommended, it is required. But, what if you’re so small time it seems more of an expense or a hassle to have more than one bank account? What sort of home businesses demand a separate account and which don’t? Here are some suggestions for evaluating whether or not you need a separate bank account for your business…
If your business operates under a separate name, you should definitely have a business account. If you have expenses and pay for inventory, supplies, etc. for your business operations, it will be much easier and cleaner to keep track of your business finances with a separate account. You then “pay” yourself from your business account into your personal account. When I was running my own consulting firm, this is how I did it. Even though I didn’t really have many expenses, I would have clients make out the check to the business (which was a LLC or Limited Liability Corporation) and then I would transfer money from that account into my personal account. Otherwise, experts and officials call putting everything in one pot “commingling” and this can get messy and hard to track.
If you are operating several small or home-based businesses, it can get financially confusing. You’ll have to decide if you want a separate account for each business enterprise, or you want to put all your business enterprises under one large “umbrella” business account. A trip to visit with your banker can be incredibly advantageous in helping you evaluate what you should and can do to keep track of your finances.
If you are an independent contractor or a freelancer, it may get even more confusing about whether you should have a separate account–especially if you only have a few clients. A freelance writer, for example, may find that payments are so spread out that it is easy to track in one account. Again, it all depends on how complicated your business finances are. If you are working a “regular” job and doing a little freelancing on the side, you may be able to get away with processing everything through one bank account. You still need to keep accurate records, though, for tax purposes.
When in doubt, see your financial consultant, accountant, or banker to help you determine the best way to keep your personal and business finances organized, efficient, and legal.