There are a lot of factors to consider while launching a new business and one of the most important factors is organizing and managing business finances separate from personal finances.
When starting a new business, there is a high probability that the business owner will use personal accounts for the business. At first, this seems agreeable and simple since the business is just starting, however, issues start to arise when the business grows and complexities set in.
Business finances simply mean the income and expenses of your business, that is, how businesses make money and how they spend it for the growth of it. As a business owner, you also have your personal money, and putting both in the same account jeopardizes the effectiveness of distinguishing what belongs to whom.
Money is one of the most volatile instruments in the world and you would agree that money at hand can easily be spent. At a point, you might even start spending profit made from the business for personal expenses and this would stunt the growth of such business. This therefore shows that there is a probability of overspending when personal finances are mixed with business finances.
In a perfect world, business finances and personal finances are kept separate. This is so because when finances are mixed, more interpretation is required to sort business income and expenses. Below are some of the reasons why you should separate your accounts.
It helps to build a business and brand identity
Much more than separating your business and personal finance, it shows how professional you take your business. Generally, businesses should have a brand identity and to enforce this, every business person needs to understand that there is no informality in business and your finances are not excluded. With joint accounts, you possibly can't keep track of profit and expenses without assuming the stand of the business.
Having two separate accounts builds and improves your professional image. For example, it is unprofessional to send your personal bank account details to clients for payment because most customers would likely not take the business as seriously as you think.
In keeping track of transactions, the First step in achieving this is opening a separate account for your business, after which Tyms Book comes into play by allowing you link all your banks to filter out the statements and with this feature all business profit and expenses can be easily tracked.
It helps in obtaining credit
When finances are mixed, there is no big picture to look at. Another reason to sort out your business account from your personal account is so that agencies and lending institutions can find it easier to establish your creditworthiness. These agencies consider your working capital, the amount of money that goes in and out of your business to determine this. And clearly, a joint account would not effectively show this.
When there is a blend of accounts it becomes difficult to verify your business credibility because to obtain a loan for a growing business, the agency has to verify that you can pay back and this is determined by your bank financial statements.
It helps with your taxes
There is no way a business owner won't incur additional taxes when finances are muddled up in a single account. One of the major advantages of separating accounts is the ability to take advantage of tax deductions to avoid the likelihood of both your business and personal finances being audited as one. For a small business, a tax hike could even take up the whole profit made.
While Tyms Book helps you in keeping accurate records of personal and business accounts, it also helps in saving you troubles with Taxes. With Tyms Book, you can keep good books of expenditures as this would absolve you of any extra charge in the event of an audit. With Tyms Book, you can see your financials and taxes can be deducted correctly.
It helps to build a mental separation
Another valid reason is Mental Separation. In business management, there has to be a mental awareness that your business stands alone and not be influenced by personal feelings and needs. One of the ways to achieve this is to sort business accounts from personal accounts. This creates a professional culture in the mind of the owner and inadvertently helps the business grow. With this, you have a clear view of your business and you can easily make decisions based on what you see.
In conclusion, merging accounts makes it difficult to make credible business decisions as you are unable to have a full picture of your business finances. It also doesn't allow you to see where your business stands financially. And because of this, you might overrate the business.
The features on Tyms Book enable a business owner to connect different banks and pull transactions from them. These transactions include inflow and outflow and altogether this brings about a knowledge of where the business stands and how it can be improved for profitability.
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