New start-ups and part time business owners have a habit of co-mingling their finances with their personal money, and while it may seem to be the easiest, most convenient and cheapest way of operating, it can have its drawbacks – especially further down the line.
Many people already in business will vouch that keeping your business spending completely separate to your personal account ensures better manageability. While many of the business current accounts available charge you for their services, there are others that waiver the charge for the first 2 years, and some will as long as you pay in more than a certain amount each month. Make sure that you shop around for the best options to take advantage of the best deals – don’t assume that your personal banking provider will be the smartest choice for business use.
If you’re still convinced that incorporating your business finances with your personal money is a good idea, here are 3 reasons why you may want to think again.
1.The concept of a hobby business
It can be extremely difficult to prove to the government that you are trying to run a legitimate business if your finances don’t reflect this. It’s a rule that only true businesses can deduct business expenses – running your business with your personal account may seem as though it’s more of a hobby business (i.e. not-for-profit) and you may have to prove otherwise.
2. The time of the tax return
Trying to get your taxes in order can be a pain at the best of times, let alone when you’re trying to navigate your way through your personal finance statements to find the business-related expenses. Personal transactions have to remain completely separate from business ones, which is bound to be more complicated if you’ve combined them.
It would be easy to miss deductions if you’re searching through your personal current account. Whether it’s you or an accountant completing your tax return, tidier, well-kept records will ensure that you can claim back every penny you are entitled to. If you operate from a separate business account, you’ll be able to provide a clear audit trail too.
If your business operates from its own separate business account you will be demonstrating a level of professionalism too – definitely a plus point when working with clients and attracting new business.
By shopping around for the best deal, you shouldn’t have to worry about spending extra each month on an account that isn’t completely suitable. Remember, your business is a business, no matter how big it is, and treating it as such will give it the best chance of flourishing. To make the most of your free banking period and to ensure you are getting the best deal for you it is worth seeking advice while you are in the planning stages of your new business.
If you are living in the Liverpool City Region (Liverpool, Knowsley, Wirral, Sefton, St Helens or Halton) and thinking about setting up a business, you may be eligible for additional FREE advice and support through Enterprise Hub. Get in touch with our team on 0151 706 8113 or email@example.com to find out more.
by Enterprise Enabler Ali McGrath