Council Post: 10 Important Reasons Solopreneurs Shouldn’t Mix Their Business And Personal Banking

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When a solopreneur is first starting out, they may wonder whether it is appropriate to set up a business banking account that is separate from their personal account. They may choose to handle their business finances through their personal bank account because they believe their company is not yet established or complex enough to warrant a separate account, that they Businesses don’t want the “hassle” of setting up a account, or that they can get the same benefits by using a single shared account. However, many financial experts strongly caution against solopreneurs taking this route.

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down, 10 Forbes Finance Council Members share why they believe solopreneurs should not mix their business and personal banking. Read their insights to learn why it might be best to keep your personal and business transactions and records separate—even if you’re the only person in your business.

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1. You Can’t Ensure Proper Accounting

The short answer is “no” – don’t mix personal and business banking. Separate bank accounts means proper accounting is about to happen. In addition, if the IRS decides to audit the business, the existence of separate accounts will help establish that someone is running a business, not a hobby. , Dr. Philip Fisher, micro macro infinity

2. You May Not Be Able to Get a Business Loan

Solopreneurs should never mix business and personal banking—not if they want to one day get a business loan. Shorting your cash is a bad habit that won’t necessarily happen with most traditional business lenders. , Christopher Harney, Fountainhead Commercial Capital

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. am i eligible?

3. Investors may hesitate to work with you

It’s impossible to know what the future holds, and you may want to raise outside capital at a later date. If you don’t have clean books (for example, financial records), investors will be reluctant to partner with you. Keeping everything separate is a small operating cost to pay now, and it can save you a lot of headaches later. , Rebecca Mitchem, Neotrib Ventures

4. It can make it difficult to raise capital

Solopreneurs should separate business banking from personal banking. If the business is successful, the solopreneur may be interested in taking on growth capital (via debt or equity) at some point to help it expand. Having separate banking with clean financial reporting will greatly streamline the process of raising capital. , Sean Frank, Cloud Equity Group

5. It creates headache at the time of tax

Personal and business banking should never be mixed—even for sole proprietors where there is no legal separation between the business and the owner. Segregation of funds is important for accurate accounting, and the blending of funds, while not strictly prohibited in some cases, always creates headaches at tax time. , vlad move, Centaur Digital Corp.

6. You May Miss Out on Incentive Programs

A business and personal bank account should never be mixed or misused. If you’re using a personal account for business expenses, you may miss out on bank incentive programs and potential tax write-offs for your business. It is wise to keep personal and business expenses separate and never shed your corporate veil. , Joseph Lustberg, upward capital

7. You may be targeted for an audit

Keep everything clean and separate for tax, liability and funding reasons. We have seen business owners refuse financing because their business revenue was in their personal accounts. You can also pierce your corporate veil or become the subject of an audit that few people know about. All of your business revenue should go to your business account, not your personal one. , Joe Camberato, national business capital

8. You May Not Be Able to Deduct Certain Taxes

Setting up a separate business account is an absolute must for any solo businessman! There is little or no cost to set up a bank account, and if you don’t separate your personal and business accounts, you could eliminate your ability to take some required tax deductions. Keeping business and personal accounts separate will save you huge headaches when you get audited — and remember, it’s not when you’ll be audited, it’s when. , Joseph Orseno, tilt

9. It’s Likely a Sign That You’re Not Compensating Yourself Properly

It is always good practice to separate personal and business bank accounts. Solopreneurs should do this keeping the future in mind. Often, the combination occurs systematically because the owner has not compensated himself properly and is supplementing his income (for example, with a car allowance or other expenses of this nature). Set a reasonable compensation target for yourself, and set the books aside to eliminate searching for data in the future. , Cynthia Hemingway, Fourlane, Inc.

10. You are compromising your liability protection and tarnishing your company’s performance outlook

Reward points from personal credit cards are a very common reason for solopreneurs to use personal banking for business use. It’s tempting, but don’t do it. You compromise your liability protection, it is more complicated when identifying business expenses to deduct at tax time and you may not understand how your business is actually performing. , Sameer Gulati, ZenBusiness

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