For new business owners, getting a separate business bank account is one of the basic pieces of advice. But sole proprietors often don't do this simply because they want to keep their businesses low key. If you're a sole proprietor but are handling things in a fairly informal way, you may want to at least get a separate bank account for money that comes in from your business, even if the account is just a regular one and not a special type marked only for businesses. In the end, it makes your financial life a lot easier as it separates your business income and outgo -- and taxes -- from your everyday money.
When you have money coming in from several different sources and all going into your personal bank account, it can be difficult to set up some sort of regular pay schedule for yourself. Unlike other business entity types, sole proprietors don't have to issue official paychecks to themselves. You end up with random amounts showing up and random amounts going out.
Instead, with a separate business-dedicated account, your income goes in there, and you can then, every month or two weeks, transfer a set amount to your personal-dedicated account. It makes budgeting and record-keeping a little cleaner for you. Plus, you can make business purchases from the business account and have those records automatically separate from your personal purchases because they'll be on different bank statements.
Estimated Tax Separation
You have to do your best to set aside money for estimated taxes. Granted, if times are truly tough -- ask anyone who went through the 2008 recession as a business owner -- you may have issues juggling all your bills. But when things are good, get those estimated taxes into a separate account and pay them on time. It can be really difficult to get back on track if you fall behind on estimated taxes. Having a separate business bank account really helps you out there.
A Note About Credit Unions
Some credit unions use a main account number with suffixed sub-accounts instead of separate accounts. In other words, a bank might give you one checking account and one savings account, but some credit unions give you one account number with suffixes added to the number to denote different funds. So you have something like account 1234-1 for savings, 1234-2 for checking, 1234-3 for a dedicated sub-account, like if you were saving for a car. You can either set up a suffix for your business funds, or you can ask to set up a completely different account number; it's up to you. But if you really want to start keeping tabs on your business funds separately, a whole new account may be best.
You can also discuss all this with a financial planner who offers small business accounting. Think about what you want to accomplish in terms of tracking your income and speak with the planner to determine which options will be the most beneficial for you.
For more information, contact companies like Universal Accounting and Financial Services, Inc.
When my card was declined at the grocery store a few months ago, I realized my financial situation had hit rock bottom. Instead of ignoring the problem, I decided to meet with a financial counselor to see what I could do to make things better. I talked with him about how to handle unplanned expenses and how to budget for my day-to-day life. It was incredible to learn more about money, and now I can proudly say I am living within my means. I decided to make this blog for anyone that struggles with financial planning so that you can turn things around.