Tips for Starting a New Business: #1 Open a Separate Bank Accountby Lester Bahr, CPA on 09/09/17
In this series of blog posts I'm going to tackle some of the common situations that every new business needs to address. Running any business takes a lot of perseverance so don't make it any harder on yourself by not following some of the basic things you should be doing. With the start of your new business there will be a lot of accounting and tax compliance procedures you will need to get on top of from the beginning. If you don't do this, things can start to get out of hand pretty quickly as business activity ramps up before your record keeping structure is sufficiently organized to properly account for all these transactions.
After you have legally registered your business, but before you start to incur expenses and earn revenues, you should establish a separate bank account under the name of the business. This is important to keep your business records and transactions isolated from your personal bank accounts. In fact, if you are a corporation, partnership or LLC you are definitely required to have a seperately established bank account. While, having a seperate bank account for a sole proprietorship is not necessarily legally required, it is still definitely recommended. What you don't want to be doing as a regular practice is comingling a lot of personal and business related transactions in the same account - and then trying to parse them apart at tax filing time into what's business and what's personal. That's a disaster. Don't do it.
Obviously from an accounting system setup perspective, your task is going to be much easier if the bank account you are incorporating into the accounting software can be done at the point where the initial balance in the account is zero. Once you've already got a slew of transactions in a business account and then you are trying to incorporate that into the setup of your accounting software is often where a lot of erroneous transactions get posted. This is an especially tricky situation when you are using automatic bank feeds for example with QuickBooks Online since what you don't want to have happen is for the bank feed to automatically pull in a lot of bank transactions and incorrectly record them.
The same thing really applies to credit cards too. Make sure you get a separate credit card for your business and just use that card for business related purchases only. Also, just as for the bank account, I definitely recommend that you get a new card, as opposed to designating a card that already had transactions, just because it's going to be much easier to integrate that credit card into your overall accounting software system when the balance on the card starts at zero. Adding a credit card which is carrying a balance already into your accounting software can be a tricky situation and lends itself to erroneous reporting of expenses with a proper cutoff time frame. And just as with a bank account, if you are using accounting software such as QuickBooks Online and utilizing the automatic bank feed feature for your credit cards, you may inadvertently pull in a lot of transactions into your business accounting books that don't really belong there.
Do you have questions about how to properly setup bank and credit card accounts for your business? If so, you can ask me here.
Also you can check out some of my articles here as well as lots of information about setting up and using QuickBooks
Lester Bahr, CPA
Advanced Certified QuickBook ProAdvisor