Get Your Small Business Ready for Success in 2018
A new year is underway, and January is an ideal time to take stock of your business finances and do a “clean up” to set you – and your company – up for success in 2018.
Entrepreneurs face many decisions about how to best set up and operationalize their company, and sometimes those choices can be overwhelming. That’s one reason why many small business owners (SBOs), especially those operating as sole proprietors, often choose what seems simplest when it comes to banking: to use a checking account that’s already set up, usually a personal checking account.
In fact, according to a 2015 TD Bank survey of SBOs, 56 percent use a checking account for both business and personal finances. Although comingling personal and business finances is a common small business practice, doing so could have consequences for a small business owner.
Using one checking account for personal and business finances seems easy. It can save the time needed to find the paperwork and identification needed and go to the bank to open a new account. Personal checking accounts also typically have lower minimum balance requirements to avoid fees, which can be attractive for saving money. But working with your primary bank to open business checking usually offers benefits such as relationship discounts or the ability to link personal and business accounts and combine funds to meet minimum balance requirements.
Business checking accounts allow small business owners to:
- Simplify your accounting and bookkeeping. Having a personal checking account and using it for your small business means you aren’t separating your business and personal finances. That can make accounting, bookkeeping and even tax time more complicated. In addition, if you ever apply for a business loan, getting financial statements would be more costly and time consuming. Separating finances from the start will keep everything in order.
- Better manage cash flow. SBOs have better cash flow management and greater insight into income management when their business funds are separated from personal. Holding separate accounts also makes it less tempting to “borrow” from business income to fund personal needs like a child’s braces or a dream family vacation.
- Build the business brand. Having a business checking or business debit card with the company name on it can help establish business’ identity. Also, customers might feel more comfortable writing a check to a business instead of a personal account – it feels more professional.
- Offer more payment options. Business checking accounts offer another advantage for business owners: The capability to connect merchant services (payments). Unlike a personal checking account, business accounts offer owners the flexibility to accept credit card and debit payments along with cash and checks, providing additional convenience to customers.
Want to learn more about business checking options? Your banker can be a great resource and educate you about all of the accounts available. For more information and tools for your small business banking, check out these resources.
If you need help figuring out how to separate your finances and create a budget for your business and personal success, contact an NFCC member agency for a small business owner counseling session.
By Jay DesMarteau, Head of Commercial Specialty Segments, TD Bank