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Greynier Fuentes is the vice president of sales and digital strategies at Veritran.
A lot goes into starting a business, from getting financing to hiring the right employees. But while planning and launching their businesses, some entrepreneurs neglect to take a crucial step: separating their personal and business finances.
In fact, according to a 2018 study by Nav, a company focused on helping small businesses monitor their financial health, “50% of business owners without a business bank account want to open one but haven’t had the time to set one up.” Time is of the essence. To protect themselves from risks down the line, entrepreneurs should separate their personal and business finances as soon as possible.
The Risks Of Not Separating Business And Personal Finances
Entrepreneurs face unique financial and legal challenges. They need greater access to loans and cash flow to propel business growth and must ensure they are as legally protected as possible. Not separating these bank accounts can lead to financial and legal risks.
For instance, entrepreneurs will likely want to deduct certain business expenses when filing taxes. But as an article published on LegalZoom notes, if business owners use their personal accounts for business matters, “the IRS may frown upon those deductions, even if they are legitimate business expenses.” Additionally, according to LegalZoom, business owners can gain greater legal protections by having a separate business account accompanied by the proper company designation.
Given current concerns around the United States economy, business owners might find that they need loans to keep their companies afloat. But without a business bank account, securing a loan could be more challenging. The 2018 Nav study mentioned above found that “70% of small business owners without a business checking account were turned down for a business loan in the past two years.” With business bank accounts, entrepreneurs put themselves in the best position possible to secure a loan if need be.
The Importance Of Seeking Professional Advice
Entrepreneurs should seek professional advice before separating their business and personal finances.
Business owners can create the foundation for well-structured, healthy financial lives that comply with all laws by consulting with the right financial, tax and legal experts for their given industries. These experts could operate independently or work at a bank. From there, experts can evaluate entrepreneurs’ unique circumstances and point them in the right direction, bringing factors to light that can make a huge difference in their finances. For example, an advisor can help a business owner evaluate their historical and current business financial data to determine the best strategies for handling cash flow.
Managing Finances In One Place Is An Option
Financial experts can also help entrepreneurs decide which financial institution to use for their personal and banking needs.
Splitting up personal and business bank accounts does not necessarily mean selecting two different banks to manage each. It is possible to house both account types within one financial institution.
There are benefits to housing both account types within one financial institution. As noted in Forbes, having more than one account at the same bank enables people to “easily manage them through online or mobile banking.” Business owners can view where their finances stand with one glance. They can move around funds seamlessly and intuitively instead of waiting for transfers between banks and juggling the different policies of each financial institution.
However, that is not to say that entrepreneurs can’t use more than one bank. Managing finances at more than one bank doesn’t have to be a complicated ordeal. Using more than one bank is manageable if entrepreneurs select platforms that provide a unified experience, helping them view and track all of their business and personal finances from one place.
Whether they use one bank or more than one bank for their personal and business finances, by conducting their research and getting the right solutions in place for their unique needs, entrepreneurs can free up their time to pursue more business opportunities that will help them grow their businesses.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.