BANKING TIPS: Separate personal and business accounts

One of the most vital aspects of running a business is maintaining accurate financial records of the business which is the only way to get a great read of how your business is doing.

For this reason, keeping your business finances separate from your personal finances is a must.

So if you haven’t already done so, you should start looking into changing that. You can start separating your business and personal finances by opening a business account. The first step is to ask about the business account options in your current bank to see what they are offering but don’t be afraid to shop around.

According to the Tanzania Chamber of Commerce Industry and Agriculture (TCCIA), 95 per cent of businesses in Tanzania are Small and Medium Enterprises (SME) and most of their owners run their businesses through their personal accounts.

Mingling your personal finances and your business operation can lead to mistakes, therefore you should separate them as it can save a lot of hassle when it comes to managing your money.

There is a high chance of accidentally overlooking business expenses or making poor business decision if your personal and business finances are mingled. Your business exists as a separate entity from you as an individual so it needs to be treated that way for financial purposes too.

This week I will share several logical reasons why every business owner should separate their business finances from their personal finances;

Professional image

The importance of separating your personal and business finances comes down to your professional image.

If you have clients that write checks to you or you write checks to them, writing a check or receiving a check using your name as opposed to your business name signals that you are not a serious business person.

Even if your business is a part time work or your business office is at your house, take your business seriously by having a business account for your business and your clients will take you seriously too.

It is important to understand that your business is more than a hobby, therefore your finances should be treated as such.

Having two separate accounts rather than using the same for both business and private purposes makes you look more professional.

At the end of the day, you want people to take you and your business seriously.

Business financial position

To get a clear snapshot of your business, you need to separate your business and personal finances. When you mix business and personal transactions, you may run into cash flow problems because it’s difficult to know how well the business is doing if you can’t know exactly the real expenses and income of the business.

Having a business account will make it easier to manage your cash flow as you will have an accurate idea of your business expenses.

Save money

The separation of business and personal finances will save you time. As a business owner, you are trying to save as much as you can so, hiring a professional accountant to prepare your finances will come with at a cost.

Having a separate account for your business will make it easier for you to prepare your finances by yourself therefore helping to save you money and time in the process.

Tax

One of the main reason to separate business and personal finances is tax implications. The law requires you to pay taxes and you can’t keep up with your tax tab if you don’t have good books and records of your business finances. This can only be done if you have a business account into which all your business transactions are going through. It can be a fatal mistake if you think you can remember all your business expenses when it comes time to prepare your taxes.

I will wind up by reiterating that it’s important to understand both the benefits of separating your business and personal finances and the dangers of not doing so.

Keeping your business and personal finances separate is extremely helpful. In a technology-driven world we are living in today, there are different ways to help you manage your business finances effectively.