When you first built your small business or startup from the ground up, you probably invested your personal savings for its initial capital. But while it may have made sense to raise funds for your business through your personal funds in the beginning, ultimately, continuously doing the same thing won’t be good for you in the long run. For one, it will gradually make tracking your income and expenses so much more difficult. Moreover, you’ll be more at risk of losing your personal savings in the scenario that your business experiences financial difficulties.
For these reasons and more, you should commit to separating your personal and business finances, for example, by opening a bank account that specializes in small- to medium-sized enterprise or SME business banking. The Philippines has good options outside traditional banks; Maya Bank’s Business Deposit is one example of a digital bank offering that will allow account holders to garner a substantial 2.5 per cent interest on business funds.
To further illustrate the point above, here are eight sensible reasons to compartmentalize your personal and business finances through small business banking online solutions and the like:
1. Legal Compliance Will Be Easier for You
First off, mixing personal and business finances can expose you to potential legal risks and liabilities. If your personal assets are overly entangled with business finances, you’ll risk losing the protection offered by your business entity.
Whether you are a sole proprietor, operate a limited liability company (LLC), or are even running your own corporation, keeping your personal and business finances separate ensures that your personal assets remain safe from any business-related liabilities.
2. You’ll Achieve Greater Financial Clarity
Another good reason to compartmentalize your personal and business finances is the amount of financial clarity you’ll be able to achieve. It won’t be as hard to track your business’s income and expenses if you keep separate records. An innovative online business banking solution will allow you to monitor your cash flow easily and accurately.
The Maya Business Manager, for example, is a customizable dashboard that will allow you to integrate customer payments from different channels, be it your online store or your physical store. Within the Maya Business ecosystem, you can track all official business transactions, from sales and expenses to disbursements.
Doing your business banking online with tools like these will help you arrive at a clearer view of your business’s financial movement and health than if it was mixed with your personal finances on a simpler platform. This will ultimately enable you to make informed decisions with a clear head and set realistic goals, especially for your business’s growth.
3. You’ll Be Able to Build a Credit Profile for Future Loans
Maintaining a well-defined line between your business and personal accounts will also allow you to build a strong credit profile for your business. In the future, when your business is ready to expand, lenders will appreciate having a detailed view of your business’s financial standing, which will, in turn, be critical for accessing loans and other forms of business financing.
4. You’ll Be Able to Streamline Your Bookkeeping and Tax Reporting
When personal and business finances are intermingled, bookkeeping becomes an even more cumbersome task than it is already. Your accounting team will have an even harder time properly categorizing your expenses and revenues, and this could lead them to potential errors and audit risks. Keeping your finances separate will simplify your accounting processes for your financial controller, reduce the risk of errors and ensure that you meet your tax reporting requirements accurately and on time.
5. You’ll Be Able to Maintain Professionalism and Investor Confidence
Being able to maintain a clear distinction between your personal and business finances will paint you as a professional in front of clients, partners, and investors. Your ability to compartmentalize will show that you are running your business responsibly and transparently. Building this kind of trust with your clients and investors is paramount to your business’s success and growth.
In addition, if you plan to attract investors or sell your business in the future, having separate and well-organized financial records will be crucial for your business valuation and keeping up your investors’ confidence.
6. You’ll Achieve Greater Personal Financial Security
Starting and running a business involves inherent risks. As such, you should shield your personal savings and assets from potential business losses or lawsuits. For that simple reason, you’ll want to keep your business and personal finances separate. Putting your personal finances aside, in particular, ensures that your family’s financial future remains protected—providing all of you with peace of mind during challenging times.
7. You’ll Have an Easier Time Distributing Employee Benefits and Payments
If you have employees working under you, maintaining separate finances is necessary for adhering to your country’s labour laws and regulations. Having distinct records for employee compensation and benefits ensures transparency and compliance with legal requirements.
Once your business is thriving to the point of rapid expansion, you can even open a separate payroll account to really streamline your operations. While it’s not a requirement for businesses, a payroll account provides additional security to ensure that whoever handles your payroll is only granted access to a small portion of your business’ finances.
8. You’ll Be More Adept at Your Personal Financial Planning
Separating your personal and business finances will empower you to create clear budgets for both of these aspects of your life, especially the former. You can plan for your family’s needs and future goals more effectively by making sure that these two are organized and separate. This financial clarity will allow you to set long-term financial objectives with your family and work towards achieving them with confidence.
As argued above, maintaining a clear separation between your personal and business finances will be crucial for the growth of your startup or SME. At the same time, it’s the smart thing to do for your overall financial protection.
While you may be dreading the idea of managing multiple bank accounts, remember that mastering both personal and business banking is a skill that will serve you well in both areas of your life. Build a solid financial foundation for both sets of finances, and you’ll soon see good fruits.