Statistically, 30% of entrepreneurs do not keep their business and personal funds separate. Seriously?
I have heard people say that their business is too small to bother with a separate checking account. Really? How long are you planning to have it stay small? Shouldn’t you be planning for and expecting it to grow?
Separate Your Accounts
One of the first things you should do when you are setting up your business, is to set up a business account that is separate from your personal account. It doesn’t have to be a “business” account by banking standards. It can be a personal account that you designate as your business account. Set it up in a different bank. You may have to transfer funds from your personal to your business account at first, but as your business gets established, you will be transferring the money in the other direction – from the business account to your personal account.
As soon as possible, establish a weekly, or semi-monthly amount to be automatically transferred from the business to the personal account. This is your payout. Eventually, you may choose to have a payroll company do this for you – especially if you have formed a corporation.
If you do open a bank-designated business account under your DBA or LLC name, be aware that there will be a 2 week (10 business days) hold on your initial deposit. This can be extremely inconvenient if you are caught unawares, as I was. This is due to a new law that went into effect April 2018. Just be aware and plan accordingly.
Make Separate Tax Accounts
Do you sell products and collect sales tax? You must have a separate account where you set aside the sales tax. Consider opening a savings account at a credit union where you have no fees, no minimums, and your money is earning 2% interest. You might as well have this money working for you, right?
The same goes for income tax if you haven’t set yourself up as a w2 employee. Set up a separate account and transfer 35% of the amount that you are paying yourself weekly or semi-monthly. Put it into an account where it’s earning interest. Otherwise, you may as well send it as a prepayment to Uncle Sam. Right? No. Let your money work for YOU.