Separate Personal and Business Bank Accounts

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Separate personal bank account for business transactions. It’s not strictly speaking necessary, but it’s a good idea. Why?

βœ… Simplify bookkeeping and manage time effectively:

It reduces the number of transactions to consider or reconcile, reduces the time needed to split out personal transactions from business transactions. It also reduces the risk of coding transactions into incorrect codes.

βœ…Cashflow management:

Separating the business transactions by using a separate account gives you a more obvious and accurate indication of the state of the business’s cash flow, and makes it easier to report on relevant things. It can make it easier to manage cash flow – the single most important thing for any business.

βœ…Audit Trail:

If your business gets audited and you need to share business banking transaction information with IRD, having these in a separate account provides a clearer audit trail to make the process less painful. Remember, if you get audited you want it over with as quickly and painlessly as possible. Mixing personal and business transactions in the same account tends to make the IRD’s job harder (therefore dragging the audit out longer), and will likely give the IRD more things to potentially question, meaning more time spent and cost incurred (needlessly) for you.

βœ…Future Lending:

As your business grows, your business might need to borrow funds. You might need to open a business account to borrow money. Having a separate account helps provide a clear picture of business transactions and may make the process of obtaining funding for cash flow or future growth easier.

βœ…Save funds to pay taxes:

It is easier to put money aside if a business has at least two bank accounts. During or at the end of the year you might have various tax bills to pay e.g. ACC, provisional tax, GST etc. Separating out business and personal banking helps to set money aside to pay business liabilities.

βœ…Claiming Expenses:

If anything it helps ensure all business-related expenses and GST is claimed. Using a personal account for business could mean you are not coding transactions correctly and missing claiming those costs and associated GST.

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