Many people who start their own business do not consider the importance of a second banking account expressly for their company. They would be surprised to find that the extra work of toting in two bank statements from the mailbox is quickly recovered by the decrease in the amount of hassle and stress created.
When you mix the money from your business with the money from your household, the result is something of a mess. Even in a stellar year, you never know which end is up. The money that you had earmarked for expansion, your spouse had earmarked for school clothes. And you both spend it. Oops! Or your spouse looks at the business and calls you a tightwad because you tell them you can’t spend all of that money; they don’t have a correct understanding of the expenses required of your company. And then there is the federal government. If everything is all mixed up together, tax time becomes even more dreaded, and that money you are supposed to send them seems to have disappeared…
A separate business account can ease much of this stress. The mechanics are simple. You deposit all monies from your company into this account. You take out all expenses. What is left is your profit. You might think you clear all of it, but think again. Uncle Sam will be hovering over you if you don’t have the money when taxes are due.
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Now comes the fun part. Well, mostly fun. However often you decide to take money home (monthly, biweekly, whatever), you get to write yourself a check. I say ‘mostly fun’ because, to keep Uncle Sam from taking your firstborn child, you really need to write two checks. One comes home. One goes into a special, don’t touch me, tax savings account. You should be taking out approximately 25% of your profit for taxes, so if you were going to take home $1000, then you write yourself a check for $750 and your tax savings account a check for $250.
When you sit down with your accountant, you’ll find that your paperwork got a little bit simpler. Print out your account statement. If you use a program like Quickbooks to organize your money, and if you’ve itemized individual transactions, then you can print a report to give you an idea of where the money is going.
So what happens when you open a second account? Your spouse gets to interact with the profit (though they should, of course, have a general idea of the business going ons). The house payment and business expenses all get paid. The federal government gets paid. The accountant is happy you made his life a little easier. And you get to stay in business for another year.