It's very easy for a freelancer to jump right into creating expenses and generating revenue right through their personal business account. As a freelancer, It is important that you take the time to set up a business bank account and fund it appropriately.
“Fund it appropriately, but what if I don’t have thousands of dollars to start off with?”Funding it appropriately would be the smaller amount between meeting the minimum balance requirements set by the bank or adding the same amount of money you would’ve spent to get your business up and running.
Different banks and specific types of accounts have different required balances so we recommend you do your research before picking the bank that is right for you. Click Opening a Business Bank Account to read more about the things you need in the United States to create a business bank account.
Here are four reasons why you should separate your personal bank account from your business bank account.
Legal Protection
Separating your personal and business finances can provide legal protection for your business if you have formed your business in certain specific ways. Click The 6 Most Common Business Structures to read more about the 6 most common ways to form your business and some of the pros and cons of each. If the business is sued or faces financial hardships, having separate accounts can help shield your personal assets from your business debts or obligations.
Accounting and Tax Purposes
Keeping separate personal and business financial records can make it easier or more error-proof to report expenses and income when tax season rolls around. This will greatly simplify the process and you won't need to worry if a specific expense comes from the business or your personal life. You will be able to discern if a specific deposit into your account is a friend paying you back for the Airbnb you booked, or a client paying you for your services.
Professionalism
Using a separate business bank account can help to project a more professional image to clients and vendors. It shows that freelancers are serious about their business and committed to maintaining accurate financial records. It projects a more professional feeling from a client's perspective if your client is writing a check to your business compared to writing a check to your personal account.
Easier to Manage Cashflow
Keeping personal and business finances separate can also help freelancers to manage their cash flow more effectively. It makes it easier to see how much money is coming in and going out of the business. This will allow you to easily see how much your business is spending compared to how much your business is making. This will then allow you to have clean projections and accurate business statements.
Overall, separating personal and business finances is an important step in establishing a successful freelance business. It can help to protect personal assets, simplify accounting and tax preparation, project a professional image, and make it easier to manage cash flow. It is important to note that the information provided in this blog is for general informational purposes only and is not intended to be legal or professional advice.