You have a business idea and you are ready to begin bringing it to life. Setting it up properly from the start may help you avoid hassles, and possibly worse, in the future.
One topic with which many new entrepreneurs struggle is handling business finances. This is critically important, as mishandling can present challenges later:
Failing to open a separate account
Some fledgling business owners fail to open a wholly separate bank account for their new business. This can make a mess of tracking expenses and income for tax purposes and may put your finances at legal risk. For example, if someone serves your business with a lawsuit, having commingled funds may put your personal assets at risk as well.
When it comes to taxes, precise records are essential. You have to know how much your business earned so you do not underpay and suffer consequences. Likewise, you need to know your expenses so you do not overpay. For instance, with commingled transactions, the IRS may more often reject business expenses you claim on the assumption they were personal purchases.
Using the wrong tax number
If you create an LLC for your new business, your employer identification number, or EIN, is what you should use to open your business’s financial accounts. However, many people may still mistakenly open a new bank or credit union account with their social security number. As with the prior point, this may dismantle important separations that help protect your personal from business finances and vice versa.
Opening the wrong type of account
Regular bank or credit union accounts do not provide the same advantages that business accounts do. For example, opting for a business account may enable you to accept credit and debit card transactions through the use of a merchant services account.
However, understanding the fee schedule and policies of the institution you are considering is equally important. Investigate a variety of establishments to find out whether they impose monthly, yearly or transaction fees or high minimum balance requirements. Your exploration may lead you to an account that does not add unnecessarily to your costs.