The Benefits of Separate Personal and Business Bank Accounts
When you run a small business, mixing your personal and business finances can be tempting, especially in the early stages. However, mixing your personal and business finances can lead to various problems, including tax issues, legal complications, and accounting difficulties. In this blog post, we will explore the importance of keeping your personal and business bank accounts separate and the benefits of doing so.
When you start a small business, one of the first things you'll typically do is open a business bank account. A business bank account is essential for managing your finances, separating personal and business expenses, and keeping accurate records for tax and accounting purposes.
You should open a business bank account when you start trading or receiving payments for your business activities, even if you're a sole trader. A business bank account will ensure that you keep your personal and business finances separate from the outset and avoid potential accounting and tax issues.
How to open a business bank account
To open a business bank account in Australia, you must provide documentation and information to the bank. This includes your Australian Business Number (ABN) or Australian Company Number (ACN), identification documents for all account signatories, such as passports or a driver licence, and proof of address.
If you're a partnership or company, you may also need to provide your partnership agreement or company constitution. The requirements for opening a business bank account may vary depending on the bank and the type of account you're opening, so it's important to check with the bank and ensure you have all the necessary documents and information before you start the process.
For small businesses, Thriday is proving to be a popular new option. With Thriday, you can sign up for a $0 monthly business bank account* in minutes and access a great range of features that automate financial admin to save time crunching the numbers and allowing you to spend more time aiding your clients. With Thriday, you can also open up to 9 sub-accounts, allowing you to budget and allocate funds efficiently.
Business bank account benefits
Starting a small business is a significant decision, but managing your finances can be daunting. Opening a separate bank account is one of the essential steps in managing your finances. A dedicated business bank account offers many benefits, such as separating your personal and business expenses, simplifying accounting and bookkeeping, and making it easier to track your cash flow. Check out the list below to learn about the importance of separating personal and business bank accounts:
1. Legal Liability
One of the primary reasons to keep your personal and business finances separate is to protect yourself from legal liability. If you operate your business as a sole trader or partnership, your personal assets could be at risk if your business is sued or faces legal action. Keeping separate bank accounts ensures that your assets are not at stake in case of a legal issue with your business.
2. Tax Compliance
Keeping separate bank accounts is essential for tax compliance, making it easier to track and report your business expenses and income. If you mix your personal and business finances, it can be challenging to determine which expenses are deductible and which are not. It can also lead to complications when filing your tax returns, which can result in penalties and fines. Thriday is especially handy for tracking separate expenses for business and personal, so you never have to worry about financial admin or tax again.
3. Accounting and Bookkeeping
Separating your personal and business bank accounts makes accounting and bookkeeping much more straightforward. On Thriday, it's super easy to track your business income, expenses and receipts as everything is located in one place, saving you time and money when preparing financial statements and tax returns. Many Thriday customers have reported saving up to 90 per cent of the time they used to spend on financial admin - going from 6 hours a week to only 30 minutes.
Separating your personal and business finances can also help you maintain a professional image and build credibility with your customers and suppliers. It demonstrates that you are serious about your business and have a professional approach to managing your finances.
5. Access to Financing
Keeping your personal and business finances separate can also improve your chances of obtaining financing for your business. Lenders and investors are more likely to lend money to companies with a different business bank account, as it demonstrates that you clearly understand your finances and are committed to managing them professionally.
Separate debit and credit cards
Besides setting up different bank accounts, using different payment methods for personal and business expenses is another way to keep your finances separate. For example, you can use a business credit card or debit card for business expenses and your personal credit card or debit card for personal expenses.
"Besides setting up different bank accounts, using different payment methods for personal and business expenses is another way to keep your finances separate"
Thriday solves this problem by issuing a Visa Debit card* that you can use for all your business expenses. This means that when you spend money on the card, the transaction is reconciled, categorised, and any GST is calculated. You can also upload a receipt immediately to have everything you need for tax time. Thriday is the only accounting platform in Australia to have an integrated card.
Separate Personal and Business Bank Account FAQs
Why should I separate my business and personal bank accounts?
Separating your business and personal bank accounts can help you keep track of your business finances more efficiently and accurately. It can also help protect your assets in case of business liabilities.
How do I set up a separate business bank account?
To set up a separate business bank account, you must choose a bank that offers business accounts and provide the required documentation, such as your business registration documents and identification.
Can I use my personal bank account for business transactions?
While it is possible to use your personal bank account for business transactions, it is not recommended as it can make it difficult to keep track of your business finances and lead to confusion during tax time.
Can I transfer money between my personal and business accounts?
Yes, it is possible to transfer money between your personal and business accounts, but it is important to keep detailed records of these transactions and make sure that the transfers are correctly classified for tax purposes.
What are some benefits of separating business and personal bank accounts?
The benefits of separating business and personal bank accounts include easier accounting, improved accuracy in financial reporting, protection of personal assets, and a more professional appearance to clients and lenders.
Keeping your personal and business bank accounts separate is essential for protecting yourself from legal liability, complying with tax regulations, and maintaining a professional image. It also makes accounting and bookkeeping much more straightforward and can improve your chances of obtaining financing for your business. By following the tips outlined above, you can keep your personal and business finances separate and ensure that your business operates professionally and competently.