Do I need a business bank account? This is such a good question and one that I have had many many times over the last 16 years. People often see having separate bank accounts as too painful. And what’s the point anyway, you spend from whichever account has the money in it, so it doesn’t really matter. Right?
Then this week I came across an article from business.gov.au, asking that very question. The article goes on to explain that if you’re operating as a sole trader or partnership, there is no legal requirement for you to open a business bank account, but If your business operates as a company or a trust, then it must have a separate bank account for tax purposes.
It goes on to say that the ATO recommends that sole traders and partnerships open a separate bank account, to separate business income/expenses from personal income/expenses. If you have a business account, the ATO suggests you avoid paying personal expenses from it.
Now from a bookkeeper’s point of view I would say YES, please have a business bank account and NO please don’t have personal expenses coming from it.
Picture this, you take your book work to your bookkeeper for your quarterly GST processing and BAS lodgement, they do all the data entry for you and then reconcile all your bank accounts that have business transactions in them. Three things can happen here:
- You don’t have a business bank account, so your bookkeeper has to reconcile your personal bank account and your personal credit card as you use both for business expenses. You have 100 business transactions for the 3 months and 500 personal transactions. Your bookkeeper, being a good bookkeeper enters all the transactions that are business AND personal, thus taking her 5 hours to do the work.
- You have a business account and a business credit card and use this for ALL business purchases, but you quite often run out of money in your personal bank account and therefore use your business account and business credit card to purchase personal things as well. You have 100 business transactions for the three months and 300 personal transactions. Your bookkeeper, being a good bookkeeper enters all the transactions that are business AND personal, thus taking her 3.5 hours to do the work.
- You have a business account and a business credit card and use this for ALL business purchases, you never run out of money and you never use the business accounts for personal purchases. You have 100 business transactions for the three months and that is it, you bookkeeping now only takes 1.5 hours.
Imagine the money you will save by having a business bank account and not using it for personal transactions. I understand that as business owners you never take enough money out of the business for you to survive personally and you could really use the ‘extra’ money in the business bank account, but DON’T DO IT. It will cost you too much in the long run.
With all the latest software updates where bank feeds happen in most software, the data entry for personal transactions is getting easier, but I would still suggest that you don’t do it as if something went wrong with the bank feeds (and I have had experience where they have) then the time it would take to work out what went wrong and fix it would take too long and be too expensive.
What I suggest you do is from your business bank account, transfer yourself (or pay yourself if you are company or trust) each week enough money to survive the week. If for some reason you need a little top up and the business can afford it, transfer some more money at another time during the week. But make sure you limit this, do not transfer money more than once a day and try really hard to limit it to 3 per week. If you need more money then you are obviously not transferring enough at the time, so increase it at the set times you have allocated to transfer the money.
Question: Do you have a business bank account? Do you use if for personal expenses?