It’s a Common, But Easy to Fix, Mistake

New and experienced business alike can assume their business account is synonymous to their own personal accounts. They spend income from the business on personal items and vice-versa, leaving the business with barely enough funds to deal with even direct costs of operation.

This usually leads to confusion on how a seemingly profitable business is unable to take care of its own expenses when it has been operational for over a year.

The first step in resolving this critical matter is to have a separate bank account for your business, rather than use a personal bank account for the business’ operations

It’s Unprofessional

The habit of having a personal account that also works as your business account may come across as unprofessional to prospective investors and other entities that you may want to engage in business with; for example, securing a credit supply deal with prominent suppliers or requesting a loan facility from a bank. It therefore becomes crucial to make that segregation for the image of the business.

You’re Losing Funds

There are also tax benefits to be gained from ensuring that the business bank account is separated from your personal one. Business expenses are tax deductible, but personal expenses are not. So, when you file your tax returns, tax professionals will undoubtedly disallow all your personal expenses, consequently increasing your business’ profits. Higher profits mean higher taxes, the money for which has already been spent on personal expenses!

With all that said, it doesn’t mean that you cannot have the business take care of you. After all, in larger corporations, the organization usually takes care of certain staff expenses depending on management policies. Expenses such as rent, lunch, fuel expenditure, etc. can be taken care of by the organization. Therefore, if structured properly, it is still entirely possible to have the business cater for some of the business owner’s expenses and still be tax deductible (hint: they have to be expenses that can be traced back and associated with business operations, like a lunch meeting with investors for example).

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