Can You Use A Personal Bank Account For A Business Purchase?

September 24th, 2013 by

Especially when starting up, a lot of small business owners ask whether or not it’s acceptable to use their existing personal bank accounts for small business purchases. It may be tempting in the beginning stages of the business cycle to combine both of your business and personal purchases into one account. Really, what’s a few pens, pencils, staplers and other office equipment charged to your personal card here and there? Sorting through personal purchases later may seem more convenient then having to manage two separate bank accounts. However, this is an ill-advised idea. In fact, one of the first things you should be doing when starting your small business is creating another account for your business finances alone for these reasons alone:

 

You Look More Professional

If you’re constantly asking your supplies, customers and other business associates to write checks out to you personally, it can really reflect poorly on you. Clients may start wondering exactly how credible your business is if you haven’t even taken the time to create a separate account for your own business. The client may start asking themselves questions about where the money is going and how you’re spending it. Would you feel more comfortable if your check was going to “Bryan Brown” or “Clark & Chamberlin LLC”?

 

It Limits Your Personal Liability

Perhaps the biggest reason to keep your personal and businesses accounts separate is to limit how liable you are in the event of a lawsuit. When setting up a corporation or an LLC, the law views your business a separate entity. This means that someone can only file the lawsuit against your business and not you personally. However, this changes if you combine both of your accounts. Lines can become blurred about what was used for personal or business purchases. The courts will start to view you and your business as the same entity and can begin to take your personal belongings. You may be forced to sell your personal possessions if the business cannot afford the full amount of the lawsuit. Do your house a favor and open up a second account.

 

It Makes It Easier To File Your Taxes

When it’s time to file your taxes it can be particularly difficult to go back and differentiate between business and personal expenses. If you’re an entrepreneur who doesn’t have a lot of time to keep a near perfect organizational system, then they’ll no doubt be some confusion when going through your yearly expenses. However, keeping two separate accounts allows you to keep both your purchases in different places so that there’s no confusion about what belongs where.

As well, if you have a job where you work from home the IRS has specific rules about what can be chalked up as a business tax expense and what can’t be.  They may be unwilling to grant certain tax deductions even if you have used them for legitimate business purposes.

 

The Solution- Setting Up A Small Business Credit Card

Hopefully by now you understand that it is imperative to set up a different account for your business. A best practice we recommend when using your business card is to set up a separate credit card for your small business. This will make it easier to put the correct purchases in separate accounts. As well, when applying for business credit card you may be eligible for additional lines of credit then you would have been if you had signed up using a personal card. To get started read this article by Chron on how to apply for your business card.