One of the important steps when starting your health & wellness business is opening a bank account for your business. Many business owners overlook this step and simply use their personal account. Here’s why you need a separate account and how to set one up.
Why You Need a Separate Business Account
What’s it matter if you keep all your money in your personal account? Who needs the hassle of one more thing to manage? Here’s why you need a separate account:
- A separate business account makes bookkeeping and tax time much simpler if you’re looking at one account for business transactions and not wading through your personal expenses.
- A separate business account protects your personal assets if you have a legal entity, like an LLC, partnership, or corporation. Part of the benefit of a legal entity is to prevent creditors or litigants from going after your personal assets. But if you’re intermingling business and personal funds, you may lose the protection of that corporate shield.
- A separate business account helps you understand your profits and losses. You’ll be able to see how much money you have coming in and going out of your business account, so you can adjust your schedule and spending as needed.
Opening a Business Account
You’re ready to open an account. What do you need to do? Here are steps to opening your business account:
- Obtain your free Employer Identification Number (EIN) from the IRS. You can learn what that is here.
- Choose a bank or credit union. You might think this is one more fee coming out of your business profits, but a number of banks offer free checking accounts for small businesses. Just do a quick internet search to find one and save yourself a few bucks in fees.
- Bring your EIN, identification, and your legal-entity formation paperwork (certificate of organization/articles of incorporation and the operating/partner/shareholder agreement) to the bank with you. Due to new regulations passed last month, if you have a legal entity, the bank will also ask you to fill out paperwork identifying who has control of it and who is a beneficial owner. This is to prevent money laundering by sham entities.
- Keep copies of your bank statements, whether digital or paper, and reconcile your account to see if it matches up with what your income and expenses were.
Positives Outweigh the Negatives
While it may take more effort to have a separate account, it actually gives you a clearer financial picture and saves time when you’re preparing to file your taxes each year. It also demonstrates strong business sense in case one day you want to bring on a partner, expand, or sell your business.
Email me at firstname.lastname@example.org or share your thoughts in the comments below.