As a successful sole proprietor, you may be tempted to run your business from your personal bank account. After all, you probably work from home and your banking needs are simple. Don’t make that mistake. That’s the word from banking experts who say that if you are serious about being in business, you should be equally serious about accounting for your business expenses and transactions properly by having a separate bank account for your business.
It can also save you money on accounting fees, as you’ll save your accountant time and frustration trying to separate your business from your personal expenses. Most commercial banks have a division that specialises in serving small business so your monthly fees will be reasonable.“It’s vital to have a separate business account for three main reasons,” says Marcel Klaassen, CEO of Biznetwork, a division of FNB Commercial that supports entrepreneurs. “It gives the entrepreneur a very clear measurement of the financial performance of the business separately from their private affairs. It also enables business owners to manage their tax more effectively and to develop and establish a separate commercial relationship with their bank, which is very important when it comes to creating a solid track record for the business.”
Simone Cooper, Standard Bank’s head of lending for small business concurs. “It’s important to establish control of your finances from the word go,” she says. “Mixing personal and business finance is simply not a good idea. It may seem simple enough to run your business from your personal bank account at first, but over time the line between personal and business transactions may be obscured and that means loss of control, which can have all sorts of negative impacts on the business.”
Access to expertise
Cooper notes that banks also have different products tailor-made for entrepreneurs, including sole proprietors. “If you want to open a business banking account, we give you access to business banking specialists who can advise on the best products and solutions available for your venture.”
Without a business account, you lose out on all of that expertise. With the right account in place, you have access to the best advice from the correct channels. That’s especially important when your business is growing and you want to apply for finance. “Because you have set up an account and the transactional history is available, your business banker will have a far better understanding of why you require the finance, as well as a record of the business’s transactional history, including income, expenditure and turnover,” adds Cooper. “ If you apply for a loan on the basis of your personal account, you will be asked to provide items like salary slips, simply because the bank will not recognise that you are a business owner.”
The micro exception
Mark Rose, head of new business development at Nedbank Business Banking, says there is one exception to the rule. “In the case of a micro business, where the personal and business life of the entrepreneurs are so intertwined as to be indistinguishable or inseparable from one-another, it may not make sense to open a business account as it can incur unnecessary costs for the business owner.”
Rose does however stress that the bigger the business, the more critical it is to have a business account. “A business that can be classified as ‘small’, as opposed to ‘micro’, should have a bank account. As a business owner, you don’t want your personal and business debt to become confused, as that can place your personal assets at risk. “In addition to that, a business account enables proper governance to be put in place, which is increasingly important in today’s commercial environment.”
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