3 Important Reasons to Use Multiple Bank Accounts

Building a business includes more than just picking a location, developing a business plan, building a website or picking your social media platform.  Some of you may be asking what could be more important.  Well, I'm here to tell you that opening a business bank account should be on your top 5 of "things to do" list.  Having a business checking account can help you deal with tax, legal and practical issues.  Many business owners choose to manage their business and personal finances within the same bank account for the purpose of convenience and but fail to realize the advantages that come with managing a separate business account.

A major reason that companies use bank accounts is for internal control.  Here are a couple of the control advantages of using bank accounts:

1. Bank accounts reduce the amount of cash on hand
2. Bank accounts provide an independent recording of cash transactions.  Reconciling the balance of the cash account in the company's records with the cash balance according to the bank is an important control.
3. A separate business bank account provides protection if your business is ever sued.

A part of a business owners financial management responsibilities include planning for taxes.  Those taxes are based on business income earned.  

Keep in mind, the Internal Revenue Service (IRS) is really picky about business owners being able to show that their business is really a business and not a hobby.  Basically, you have to show a profit on Federal Tax Form Schedule C three years out of every five.  Having a separate business bank account established further proves you are a business and not a hobby business.

As your business grows, it becomes critical to build a proper legal and financial foundation.  Opening a separate bank account is one small step in that direction, and will help keep your accounting records organized.

---

about the Author

Terra Fontenot-Beard, MBA is a passionate entrepreneur and accounting and operations specialist who strives everyday to make accounting your new best friend.  She is the Founder of Fontenot & Associates Solutions, LLC in Katy, Texas, a firm who specializes in supporting entrepreneurs and small business owners with managing accounting and operations services.