Running your own business takes dedication, planning, and hard work. Each day brings new challenges and it can be difficult, at times, to stay on top of every aspect of your company when things get hectic. Some things can wait a moment when obligations pile too high, but keeping your finances organized is a must. Here’s why business owners (sole proprietor) in a sole proprietorship should separate their business and personal expenses.
What is a Sole Proprietorship?
A sole proprietorship is very common and one of the simplest business structures an entrepreneur can choose. A sole proprietorship is, as the label suggests, an unincorporated business owned by one person.
Unlike with some other forms of business structures, there is no legal distinction between the business and the owner when it comes to a sole proprietorship. This means you are also personally responsible for paying all business debts and liabilities. It also means you get to keep all the profits that you make, after taxes.
Why You Need Separate Personal and Business Accounts
It’s important to keep your personal and business accounts separate for several reasons. This practice allows you to:
- Track business gains and expenses
- Budget properly
- Avoid the bank closing your personal account
- Be accurate at tax time
- Limit legal issues
- Stay professional
Track business gains and expenses
With a business account, you can easily track your business sales and expenses. Without one, your personal finances become mixed in with your business activity. This makes it hard for you to budget accurately, and it could put your personal banking assets at risk.
Once a bank gets notified that you are using a personal bank account for business expenses, they will likely request you open a business account (which has higher fees). They could even close your personal account and force you to create a business account.
Keep accurate financial records, and more
Most importantly, a business account allows you to more accurately complete your taxes without having to wade through a long financial mess. It can also allow you to more easily avoid any legal disputes over how money is being spent, which makes it easier for you to remain professional at all times when operating your business.
Finally, if you are seeking investment to grow your business, any venture capitalist or angel investor would want to see a clear and accurate narrative regarding your financials. Having clear and concise financial records can go a long way towards convincing others your ideas are worth their risk.
A Local Business Attorney Can Help
The law offices of Cipparone and Cipparone are your destination for a local business attorney in Orlando. Do you need help choosing a business structure? Do you need advice related to a business or commercial dispute? We can help.
We are committed to providing our clients with creative solutions and strategic advice. Our corporate law services cover partnership disputes, commercial lease eviction, commercial and business disputes, and more.
**This blog is for general informational purposes only. Cipparone & Cipparone, P.A. does not distribute legal advice through this blog. As such, this blog does not constitute legal or other professional advice, and no attorney-client relationship is created between the reader and Cipparone & Cipparone, P.A.
Tags: Business Law, small businesses, sole proprietorCategorized in: Business Law