The financial world runs on two main strains; the world of business, and the world of personal finance. When the two come together, usually in the form of someone opening up their own business or beginning to work from home, the lines get blurred, and that can be a very dangerous thing.
After all, coming into a career in finance is one thing, but having to keep an eye on both your company’s finances and your own finances is a difficult balance to come to. One can affect the other and vice versa, and creating a healthy disconnect here is essential. But for a few more details on this idea, let’s go through the main points about why it’s necessary below.
Removing the Idea of Mutually Assured Destruction
When using the same account for both your business and personal finances, there’s a real sense of mutually assured destruction for both you and your family. After all, if your business goes down, or stops making as much money as usual, your personal finances are going to be affected as well. You need to do everything you can right now to stop that from happening!
Creating a gap means you have a defense, in case of disaster striking. You’ll have an emergency fund to live off of in your personal account, whilst your business account is being drained – you’ll be living with a lot less stress on your shoulders, so plan ahead.
It’s Great for Tax Purposes
Taxes are what businesses seem to fear the most, and if you’re a business owner, you probably hate it when the financial year ends. However, it’s still something you need to deal with, and having two bank accounts makes it a lot easier. Indeed, most governments will require you to use a separate business bank account in order to trade – after all, it prevents tax fraud from occurring in large amounts, and it also makes calculating your tax year by year a lot easier than usual.
However, if you’re freelancing, or sole trading, this won’t be a requirement, but it’s still something you should think about doing.
Why? It just makes life a lot easier! It makes it easier to allocate resources month by month. It makes it easier to track your spending without getting confused. It makes it easier to pay any and all kinds of bills without eating into the separate funds. And of course, when the time for your tax return to be submitted rolls around, especially as you’ll be working this out alone, you’ll find it a lot easier to work out what’s owed.
All in all, your business’ finances, and your own personal finances, should always be kept separate. Why? Because it ensures you’ve got an emergency fund available, you’ll never be too affected by debt and/or dissolvency, and you won’t lose too much to the tax man. So, if you haven’t opened up two separate bank accounts already, now is the perfect time to!