Are Business Bank Accounts Necessary?
The short answer to this question is . . . Yes, business bank accounts are necessary.
What's interesting is that I'm also often asked. . .
Can you use your personal savings or checking account to run your company?
Or, "Can an LLC use a personal bank account?"
The short answer to both of these questions is . . . No. You need a business bank account to hold and manage your business money. This needs to be separate from your personal bank account.
But why is it so important?
You and your business are actually separate entities. Keeping your business account separate from your personal account will protect your personal assets and legitimize your business.
Not only that, but it's pretty much required by the IRS. There are a few exceptions, but those exceptions prove the rule. The most important reason to have a business bank account is to help you manage your cash.
I actually recommend you open six business checking accounts, and I will tell you why.
First off, each account is different and serves a unique purpose.
1. Income account - the purpose of this account is to collect your customer payments and then act as a serving trade to the other accounts.
2. Inventory account - this account is to save for and buy inventory. If you don't have a product-based business, then you don't need this account.
3. Profit account - this account has a threefold purpose:
Serve as an emergency fund
Make extra debt payments
Pay a quarterly bonus or dividend
4. Owner's compensation account - the purpose of this account is to pay the owners of the business, that are working in the business.
5. Tax account - this account is to pay the annual income taxes of the business and the owners also and also the owner's annual income taxes.
6. Operating account - this account is to pay for everything that we haven't specifically mentioned above. This includes rent, utilities, payroll, payroll taxes, and sales taxes, just to name a few.
So you may recognize this as the Profit First cash management bank account setup.
And you're right, it is.
I use the Profit First cash management system in my business because it is a proven system.
It ensures that I'm spending and saving the right amount of money on the right things. It works for any size business, from the solo entrepreneur to mega-corporations.
This is the system I used to get my quilt shop that I co-own with my mom out of debt and profitable in under 18 months. It's the system that I use with my clients and promotes everyone just because it works.
It's so simple to use and it works.
So do you need a business bank account? No, you actually need six business checking accounts because the Profit First cash management system ensures healthy cash flow and keeps you on the path of financial freedom.
I'll actually show you how and why Profit First works and how to get it set up in your business. Join me Thursday, November 17th @3:00 CST for a free webinar! Click here to register and get started on your path to financial freedom.