Updated: Sep 15, 2021
If there’s one mistake I see the most among entrepreneurs, it’s that they put all of their finances into one bank account. (If that’s you, it’s okay, you're not alone… and we’re going to fix that today!) I’m sure you’ve heard it time and time again, but you must have a separate business and bank account if you’re an entrepreneur, solopreneur, business owner, and so on. Not only does it make your life so much simpler, it’s really simple to do!
Let’s talk about the benefits of having a separate business bank account and a few resources to get you started so you can confidently manage your money and experience that sigh of relief that it’s done right!
Benefits of Having a Separate Business Bank Account
TIME! Next section. (Okay, I’m kidding — but not really.)
Having your business and personal expenses exist in the same account will ensure that your books are a hot mess. Hang on, it’s more dire than that. What’s hotter than hot? You’ll have the Flamin’ Hot Cheetos version of bookkeeping. And I don’t think that’s what you want.
It’s incredibly confusing and overwhelming when you try to manage your expenses for your business when you are also sifting through your personal transactions. Things will get muddied (if not totally just fall through the cracks) with mortgage payments, your spouse’s paycheck, and a random Venmo to your friend thrown in together with payments to your contractors and other business bills.
Further, when it’s all thrown into one bank account, you’ll have no up-to-date idea of how much money your business actually has. That makes it very hard to forecast your revenue, create a Profit and Loss statement, or even just know whether you actually can afford that muffin to go with your coffee at your next business catch-up coffee date. And taxes… Pulling apart that mess at year-end? Woof.
One more thing before I move on… If your expenses are all thrown together in one account, I’m betting it’s pretty overwhelming when you log into your account, so you’re not looking at it regularly. Because of that, it’s possible you could be paying for subscriptions that are duplicates, out of date, or weren’t even opened by you. Fraud is a thing that happens now. It’s easy to let things like this slip through the cracks if you don’t have a clean bill of transactions.
Set Up a Separate Business Bank Account and Use It!
Okay, I think you get it. Having a separate bank account for your business is something every entrepreneur must do when they’re getting serious about their business and their money. It saves you time and money. So, if you’re sitting there thinking, “Got it, Laura. I’ll do that…” here are two simple things you can do today to fix this mistake and take control of your bank account and money confidence.
Step 1: Open a Business Bank Account
Most financial institutions that you’re already doing business with have business options. (Read: You can most likely open a business checking account at the same place you do your personal banking. It doesn’t get easier than that!)
You may also want to take advantage of where the world is heading and go entirely paperless and online. A business banking provider like Relay Financial or Novo are both fantastic options if you prefer a virtual, paperless experience with a fast, online-only setup.
Step 2: Create a Few Extra Accounts
I know, I know, you just opened one. And I am celebrating that victory. It is good enough for today. But if you want to make it even better, I’d suggest you open a few more to help you stay organized. You’re doing the work to make it easy on yourself, after all. Why not take a little extra time at set-up to make your life infinitely easier in the long run.
Doing this really helps separate things even further because if you have only one business checking account, you’re still just seeing one number and not knowing where it’s all going. You may not realize that you have payroll coming out tomorrow, so you think you have much more than you actually do.
The most common extra accounts to have are for taxes and business savings. You could also do this for payroll, a set yearly expense that you want to add a bit to each month, a bigger business purchase…. You get the idea!
I started doing this recently and it’s allowed me to earmark money for certain things so I know exactly what my cash flow looks like and what’s available without accidentally overdrawing my account. It really helps to separate things even further and know exactly what job my dollars are doing.
Step 3: Use Your Accounts!
Now that you’ve taken the time to set up your bank account(s), it’s time to put ‘em to use! Take stock of any automated payments that come into and out of your current bank account and make a list of when and on what date. Then go through and update payment info with those vendors to have your charges originate in your shiny new business bank account!
As you do this, it’s a great time to take stock of what your expenses are and whether you want to continue using certain subscriptions, programs, and so forth. Sometimes, we just keep something without considering whether we actually want it or use it. Or we pay for something without knowing that we are because it’s on automatic payment. This is a great step to keep your cash flow happy!
No matter where you are in your entrepreneurial journey, having a separate business bank account is a must. You’ll find so much time because you’re not sorting through a bunch of debits and deposits that aren’t related to your business. You’ll save money with overdraft fees and maybe even by finding services you no longer want to continue paying for. You’ll see what money is really coming to your business and what your business can support financially. And you’ll finally have clarity around your numbers so you can make informed decisions in your business.
If you’re doing this, you may also be guilty of the other two money blunders I see almost every entrepreneur doing. Don’t worry - I’ll show you exactly how to correct these mistakes so you can feel confident when it comes to your numbers and have peace of mind that your numbers are in order so you can get back to doing what you do best!