Here’s why business owners should separate personal expenses

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Starting a new business comes with a litany of decisions to make, both logistical to financial. Some are required before getting started, while others are made along the way. One of the most impactful decisions is whether to separate your business and personal expenses or to let them mingle. 

When Aaron Anderson, an entrepreneur in Philadelphia, first started opening businesses, he didn’t realize the importance of keeping accounts separate. “When I first started out, I didn’t know what I know now, so I just ran everything out of one account,” he said. “It’s very hard to separate finances when you’re first starting out, so I just used that same account to pay personal bills.”

The benefits of keeping your accounts separate

Anderson, however, quickly learned that keeping things separate was the way to go. After years of working in other industries, Anderson began opening franchises of The Original Hot Dog Factory in Philadelphia in February, and he’s managed to continue opening more locations throughout the East Coast despite the pandemic. 

“If you keep everything together, it’s that much harder to figure out how much you’re spending, how much you’re making and know how much it’s costing you to produce a product,” he said. “From a financial aspect, with tax purposes and bookkeeping, if you run your books with both your personal and your business, it’s a nightmare.” 


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Setting up and managing separate accounts for your business can add some extra effort at the beginning, but this additional work comes with protections and fewer headaches in the long run. 

When you create a separate bank account and credit cards for your business, it makes it clear which income and expenses are related to the business and which are for your personal life. If you’re a sole proprietor, this isn’t necessary, but it can make life — and accounting — a whole lot easier. Keeping personal and business spending separate makes tax time much simpler, especially since tax-deductible expenses will all be in one place.

If you form a business entity such as a limited liability corporation or corporation, it’s even more important your financial accounts are separate from your personal. That’s because the business is its own separate legal entity, and the benefit of this is that it offers you protection from personal liability. For example, if you have an LLC and your business is sued, or a creditor goes after your assets, your business’s assets are at risk, but your separate personal assets typically are protected. 

If you co-mingle your personal and business accounts, things can get murky and introduce some personal liability. For example, according to Legal Zoom, if you deposit non-business money into your business bank account or write checks from your business account for personal expenses, it blurs the lines as to what belongs to your business and what doesn’t. This leaves you more vulnerable and can make it easier for creditors to come after your personal assets. 

How to successfully set up and monitor a small business account

If you’re preparing to start a small business, here are some steps you can take to establish separate accounts for business purposes. 

1. Choose a financial institution

When you’re ready to open a small business checking account, you need to find the financial institution that works best for you. Your main choices are banks or credit unions, though there are some subcategories within those.

There are traditional banks, like Chase or Wells Fargo, which have an online presence in addition to brick-and-mortar branches. If you won’t ever need in-person services, you could instead look to an online-only bank, which may have lower fees and better interest rates due to lower overhead. 

Another option is to use a credit union. They range from large national chains to small, one-location offices, but all credit unions are not-for-profit. While you have to meet certain criteria to become a member of a credit union, these financial institutions tend to be more community-oriented than banks, so by establishing a business relationship with a local one, it may make it easier to get a loan down the road if needed. 

It helps to consider what your needs are, and to comparison-shop to make sure you get the best features and the lowest fees. 

2. Apply for a business credit card

A business credit card is a handy way to finance occasional expenses when you don’t have steady cash flow, and it also provides more protection when shopping online. You may also enjoy perks like airline miles or cash back. More importantly, it can help you establish and build your business credit file. 

You may be able to apply for a business credit card through the same financial institution where you set up your business checking account. But you may want to use a different credit card issuer if you want certain perks, like turning everyday business purchases into travel rewards or cash back. Make sure to compare fees, interest rates and benefits.

3. Get a D-U-N-S number

A D-U-N-S number, also known as a Dunn & Bradstreet number, is a unique nine-digit identifier for your business that you can apply to receive. You’re required to have one if you ever plan to bid on government proposals, according to the U.S. Small Business Administration. You can’t register with the federal government for a contract or grant without one. 

Otherwise, while you’re generally not required to have one, a D-U-N-S number is also used to help you establish your business credit file. Yes, your business has a credit report too, and it’s smart to make efforts to keep both your business and personal credit in solid shape. 

Businesses and lenders can look up your D-U-N-S number to obtain basic information about your business and its financial health. This includes payment history, your industry, your revenue, your number of employees, and information about lawsuits, liens and judgments. It also includes various proprietary scores and ratings intended to help potential creditors and business partners, including ones that assess your business’s financial health and predict your likelihood of delinquency.

Dunn & Bradstreet is not the only company that puts together business credit files, as some of the consumer credit bureaus also offer business credit products, but having a D-U-N-S number can help start the process. And if your business credit is strong, you’re more likely to get approved for loans or lines of credit, and you improve your chances of landing better interest rates. 

“Having a D-U-N-S number is important since it helps you establish business credit,” Anderson said. “But you typically don’t need it right away.” He typically obtains one between three and six months after opening each business, he explained, once he’s done setting up his other business financial accounts. 

4. Connect your accounts

Your business will have many recurring expenses, such as utility bills, software subscriptions, membership fees, office supplies and so on. Make sure your business debit card or credit card, not your personal cards, are linked for these purchases. When you make any one-off purchases, double-check to make sure you’re using your business card. Always seek out credit card offers specifically rewarding you for the types of expenses you are charging. 

5. Set up your accounting system

It’s important that you also set up an accounting system to help monitor your income and expenses, and keep tabs on your account balances. If you’re not very accounting-savvy, you may want to outsource this task. 

Before opening his restaurant franchises, Anderson kept his own books. But as his business portfolio expanded, it became unmanageable and he now has an accountant handle bookkeeping. If you plan to start by bookkeeping yourself, he recommends purchasing QuickBooks and understanding how it works so you can successfully manage your business finances. There are also other tools out there, such as Wave and FreshBooks. If you go this route, make sure to compare costs and features since they can vary quite a bit. 

6. Know you won’t always be perfect

Sometimes, it’s crystal-clear what constitutes a business expense and what’s personal spending. But it’s not always black and white, and things can get tricky. For example, say you want to renovate part of your home that includes a home office. Or you want to book a business trip with personal airline miles (or the other way around). What do you do? 

If you find yourself in an uncertain situation like this, especially for a bigger purchase that could have a sizable impact on your taxes or finances, check with an accountant first. Or, if it’s smaller, just make notes and keep track of it, so when tax time rolls around, you can easily explain anything that looks irregular. 

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