Are your bank accounts doing the most for your business?

The importance of separating personal finances from business, and knowing which accounts can support your goals

When you are just starting, it can be tempting to run business income and expenses through your personal account, especially if the volume is low or you’re still getting everything set up. However, it is foundational to separate business and personal finance accounts — especially for any business that plans to hire staff, work with contractors, or take out financing. Here are four benefits to separating your business accounts as soon as possible:

1. Clearer visibility into how your business is performing

When all business-related transactions are in one account, it’s easier to categorize expenses and identify areas where you might cut costs or invest more. When your records are clearer, you can make more informed decisions about your business’s future.

2. Reducing accounting or bookkeeping fees

With clean records, you reduce the likelihood of mistakes, meaning less time (and cost) spent correcting them later. Your financial adviser can spend more time providing strategic advice, and it will also ultimately make tax prep easier and help you to identify the most advantageous tax deductions.

3. Smoother operations

If you have a business account, you can streamline transactions by linking other accounts like a business credit card or a mobile payment solution. You can also take advantage of online accounting software that integrates with your banking, making monthly reconciliations more efficient.

4. Easier access to financing and business credit

Lenders will require proof of your business’s revenue, expenses, and cash flow. By using a business checking and credit card account, you’ll establish a financial footprint that builds business credit, create clean records lenders can review quickly. You’ll also be prepared to apply for grants, SBA loans, or investments down the line. And of course, the earlier you separate personal and business accounts, the more complete the financial picture of your business your records will provide.

Selecting your business accounts

Your business account can be as simple as a business checking account, but there can be advantages to setting up a variety of accounts for your business. Here is an overview of some accounts and how they may be beneficial:

Business Checking Accounts are a great solution to meet basic transactional needs and gain access to online banking. Account details will vary by institution, so make sure you know which features and services you need: mobile deposit, bill pay, eStatements, a debit card, etc. Look into minimum monthly balance requirements and transaction limits to make sure the account fits your needs and explore whether there are options that allow your accounts to earn interest.

Business Savings Accounts can help ensure that you build cash reserves to keep your business healthy. A traditional savings account should have a low minimum balance and a steady interest rate. Your funds may not grow quickly, but an account that is separate from the checking account linked to payables and receivables is a smart level of protection in this age of fraud.

Certificates of Deposit offer a competitive interest rate over a specific period of time. These accounts often have a minimum balance, but lock in a higher interest rate than a traditional savings account. Interest rates will vary based on how long the funds will be set aside, so make sure to select the option that best suits your needs.

Business Money Market Accounts will have a higher minimum balance, but also a higher interest rate, rewarding you as your assets accrue. Some accounts even have tiered interest rates so that your rate continues to improve as your balance grows. There may be a limit to how many transactions can be conducted per month, but funds are not “locked up” for a set period of time.

Credit Cards are often used to allow more flexible business spending, as well as increased security. Because credit cards do not have direct access to the cash in your accounts, they are a more secure way to make business payments. The variety of credit cards available in the market can be overwhelming, so work with your financial partner to determine what will best support your needs and goal. Be sure to consider:

• Interest rates and fees
• Rewards or cashback programs
• Liability protection policies.

Make sure your financial partner can support you when you reach the need for a credit card program. Explore and understand the details of offering business cards to multiple people in your business, and how you will manage limits, authorizations, and bookkeeping.

Sweep Accounts automate fund movement between accounts to make sure that any excess is working for you. Excess funds can be “swept” to pay down the principal on a line of credit, or moved into an investment option of your choice, or spread across multiple accounts to achieve FDIC protection. Work with your financial partner to determine which will best serve your needs and goals.

Separating your personal and business accounts will simplify your financial management, and working with your financial partner to pick the most advantageous accounts for your needs will also position your business for growth, credibility, and long-term success.