The Benefits of Keeping Your Business Account Separate
If you’re a sole proprietor, then your personal and business accounts are one and the same. You collect all the revenue, pay all the debts, and deal with all the taxes.
You’re personally liable for all of your business finances, debts, and taxes and you assume all legal liability as well. As a sole proprietor, you could wind up losing personal property (such as your house), if you’re unable to settle your financial obligations otherwise.
By separating your personal and business accounts, you protect yourself from assuming liability for your company’s financial responsibilities; no matter how well or poorly your business is doing, your personal finances and assets won’t suffer—as long as you take the right steps.
How to Separate Personal and Business Accounts
First of all, you will need to incorporate your company. Corporations—whether they’re an S-Corporation, C-Corporation, or Limited Liability Corporation (LLC)—all shield their owners from financial and legal liability. Choosing the most beneficial legal structure for your business and fulfilling all the requirements when filing for incorporation is necessary to separate you from your business.
The second step is to set up a business bank account. As soon as you’ve registered your corporation with the Secretary of State and acquired a Federal Tax ID Number, you’ll be eligible to start a bank account for your business.
Once you’ve completed these measures, it’s essential that you make sure you treat your personal and business accounts as completely distinct and separate entities. Avoid mixing up personal finances, expenses, credit, and assets with those of your business. While it might seem harmless to pick up a personal expense on a company credit card, failing to separate personal and business accounts can cause significant legal and financial trouble—or at the very least, it can seriously confuse your accounting.
Separating Personal and Business Credit
You will probably also want to start establishing business credit, distinct from your personal credit. One of the first steps you should take is to get a D&B D-U-N-S® Number from Dun & Bradstreet. This is an identification number that allows businesses and banks to look up your business online. It also allows you to set up a business credit file that includes whatever financial information you choose to furnish to the credit bureaus. Businesses, banks, and governments can review this credit file and will use it in making business, lending, and contracting decisions, respectively.
After you’ve acquired a D-U-N-S® Number, applying for business credit is not only a great way to finance your business—it can also improve your business credit rating and help to establish solid credit history. Using business credit and financing options demonstrates the financial reliability of your business by showing that it pays its debts on time.