2. Make your accounting more efficient
Keeping your personal and business bank accounts separate makes it easier at tax time, too. Whether you pay quarterly or annually, when you take the steps before hand to separate your business checking account from your personal bank account, you'll be able to quickly find the relevant information for your tax statements.
If you are using a CPA, you might consider an online banking application to manage your business accounts. Some let you create permission sets, giving others like CPAs and bookkeepers read-only access to help with preparing your financial statements. Some banks go further and will offer an online accounting feature that you can use securely without adding software or equipment. This might also help you:
- Create and send professional online invoices with your company logo and information
- Easily track which invoices have been opened, paid or are outstanding
- Access balance sheets, general ledgers and other reporting
- Get paid directly into your business checking account
- Accept credit and debit card, ACH and electronic check payments with competitive processing rates
3. Take advantage of tax deductions and benefits
Starting a business can involve a lot of fast-moving pieces. That's why you'll want to track all the invoices, transactions and deductions that could later impact how you file your taxes. Establishing your business and creating a separate account will make it easier to do this at tax time.
Because there are many potential tax write-offs business owners can benefit from, it's probably best to review your situation with a CPA for professional guidance. For example, if you're set up as a licensed business or independent contractor, there could be deductions for your home office, using IRS guidelines around the "exclusive use test." During the pandemic many of us shifted from office work to home-based work, so this doesn't apply if you happen to work from home for someone else; this only applies if you work for yourself in a space in your home that is exclusively dedicated to running your business operations. Expenses can include supplies and utilities like electric/gas, water, internet or phone bills. You may even be able to write off full or partial expenses for the use of a vehicle and meals or travel expenses associated with running your business. Check with your local CPA or use an accounting software to help you review a full list of deductions.
4. Protect your assets from legal liability
Keeping your business assets separate from your personal finances can be a liability and help protect your assets in the case of any legal actions.
Nobody ever wants to think about hard times that may hit their business, such as the need to dissolve it or to be entangled in legal issues. If this happens it's important that your hard-earned personal assets—such as cash deposits, retirement and personal property—are safe, so you can recover quickly.
When considering the type of business entity you want to set up, understand that some have more protections than others. Always consult a CPA or attorney about what may be best option for your particular situation.
Finally, you not only want to make sure your business is maintained separately from your personal cash deposits, but also think about separating operating agreements, by having your business name and account information listed on lease agreements and supplier contracts. This can also help when it comes to your purchase of appropriate insurance coverage.
5. Establish a business image and credibility
A separate business account can help make your business appear more established and reputable—when your business name appears on invoices and credit cards, for example. Like many business owners, you may initially operate under your own name, but as your business grows you may consider a DBA ("Doing Business As")—operating under a distinctive business name. All this can also help you appear more credible to clients, suppliers and partners, which can in turn help build brand equity.
You might also consider getting a business credit card with your business name on it. Not only do many cards offer rewards like cash back or travel points, but when you use it for everyday business-related purchases, like client lunches or office supplies, those expenses get captured in a single, convenient monthly invoice.
6. Access to business-only financial services and more
Some banks offer limited business banking features, such as a business checking account. Others however offer more robust services to support your business as it grows, like TD Business Lending, TD Merchant Solutions, Paycor for payroll and TD Online Accounting. These can often be scaled to meet your needs, consolidate your business finances and potentially improve efficiency and overall cash flow.