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Be honest: how difficult were your taxes this year? Did you have trouble figuring out how much you made and how bad your expenses were? Were you afraid you missed something? How many fistfuls of hair did you pull out?
Many sole proprietors start their businesses as a hobby or side income. It might not seem worth it to go to the hassle of opening a whole new business bank account. But keeping your personal and business finances combined can lead to some pretty bad headaches. And not just at tax time, either. There are several reasons why you should consider splitting your two financial worlds up immediately. Here are a few that could be affecting your business right now.
Audits
As mentioned, taxes can particularly be burdensome when you have to figure out which of the numbers correspond with your business rather than personal finances. On top of that, though, there’s the chance your business could be under the watchful eye of the IRS, even more so than usual.
For example, the IRS could come down on you for deductions you’ve made for your business. In this case you’ll need to prove everything, which is significantly harder to do if all your finances are mixed up. You want a nice, clear trail that the IRS can follow.
Also, there’s something called the “3 of 5” rule. Basically the IRS requires a business to turn a profit 3 out of 5 years it’s in operation. If not, you could be considered a “hobby business” meaning a lot of your benefits (like deductions) will be taken away.
Growing Business
If you’re just now thinking about getting a business account, chances are you’re just getting started on your journey. You want to grow your business as quickly as possible and in the direction you want it to grow. Any hiccups that get in your way can derail your plans for the future.
Keeping your finances together like you are now can be a serious deterrent to growth. When you have a separate business account, you can quickly scan and see just how well you’re doing. It’s easy to at least guess how much money has gone in and come out lately.
You can even go further and get an account with GoDaddy Online Bookkeeping. Here you can get accurate checkup’s on your business’s health with tools like Biggest Vendor and P&L reports. With these, you can really grow your business in the way you want.
Professionalism
The actual physical nature of your monetary growth is one thing, but there’s also the “feel” of your business. This is an intangible you can’t hold in your hand, but it factors into your business more than you realize.
Let’s say you need to tell a customer who to write a check out to. Which sounds better: “Bob Smith” or “Pencilton’s Finest Tires”? When you start treating yourself like a business, you’ll act like one, even if that’s in the simple act of having a company name on a bank account.
Eventually this feeling and attitude will filter through the rest of your business. You’ll be more confident in conversations and making deals with customers. Think it’s silly? Give it a shot and see!