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Reasons to separate your business and personal accounts
Keeping your business funds and personal finances separated can save a lot of hassle when it comes to managing your money, by reducing confusion at tax time, as well as time spent separating out your business transactions. Here are a few examples of how having a business account rather than a personal account for your business can help.
1. Cleaner accounting
If you separate your personal and business accounts it's easier to get a clear snapshot of your finances. This is not only true for day-to-day transactions but also when you're with your accountant working out your overall financial position. Drawing a clear line between the two separates your personal money from funds that would go towards running your business.
Other advantages when it comes to accounting are:
- Easier management of cash flow as you have an accurate idea of business expenses
- Easier completion of business activity statement reporting
2. Easier tax compliance
Most businesses incur expenses when generating income and often these can be deducted from the income when calculating business income tax.
Having a clearer picture of your business finances will make doing your taxes easier when the time comes to complete your returns. If you don't separate your business and personal spending, you could spend hours going through bank statements trying to identify each business transaction. Not only is this frustrating and not a great use of your time, it means you may also miss valid business expenses hidden in your personal bank statements and this means you could lose out on possible tax deductions.
3. Your brand
Having a business account from which you make payments, as well as lodge payments into, will help your business appear more professional and established to your suppliers and customers. It’s also an opportunity to get your business name out there, and hopefully as a result build trust and awareness of your brand.
4. Smoother business transactions
If you have a business account you can link other accounts like a business debit or credit card or a payment terminal solution, making for more streamlined transactions.
As your business grows you may find you have to open a business account in order to get finance and further expand. If this is the case, separating your personal and business accounts now will help you to easily provide any lender with full financial records of your business.
5. Bonus tips for smoother business finances
- Consider using an online accounting tool, like Xero or MYOB. These tools can integrate with your banking, and automatically send information back to your accounting system. This ultimately saves you time by making monthly reconciliations quick and efficient.
- Tools like Google Analytics, Facebook, Vend and Shopify will show you key business information daily, in the time it takes to make your morning coffee.
- Consider opening a separate savings account and regularly put amounts of money into it to help with your cash flow when your tax liabilities are due.
- Create a business budget to help you figure out how much you have to spend, and to help manage your cash flow.
- Think about your online banking requirements. If you need to make bulk payments or require more than one user with controlled access, register for ASB FastNet Business.
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This page is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and should not be relied on. This information has been prepared without considering your objectives, financial situation or needs. We recommend you seek independent professional advice and contact Inland Revenue before acting on this information.
