Setting up a separate bank account for business is something that has many people questioning. When do you actually have to set one up?
When you start trading there is so much to do and remember. You may need a website, storefront, branding, stock and of course a place for your payments to go. A lot of small businesses when they start up turn to Paypal as their payment gateway. It’s easy, free to create an account and your transactions are all in the one place.
In some cases though, you need a secondary method for payment to cater for those who don’t have Paypal or don’t like to use it. Usually this becomes a bank account.
Sole Traders, you may be pleased to know that you don’t legally have to set up a business bank account when you start trading. You can safely use a personal account that is set up in your own name.
There is, however, benefit to having a separate bank account for your business. Keeping your funds separate will help with accounting and bookkeeping. Keeping track of expenses and payments can be hard at the best of times. Having your business payments becoming mixed up in your Woolworths online shopping may become frustrating come tax time.
Thankfully, these days it is a bit easier to set up a business bank account. A lot of the time you can do it all online, however in some cases you may need to visit a branch. Whilst a lot of banks offer a dedicated business account, as a sole trader, in most cases a transaction account will suffice.
Once you have set up your new account, keep it solely for your business transactions. Update your invoices with the new account and only make payments and business expenses from that account. Give yourself a salary each week so you have a clear separation between business dollars and personal dollars.
Link your new account to your accounting software if you have one to keep track of your income and outgoings. Doing all this will make tax time a breeze!
Partnership, Company or Trust.
If you are operating as a partnership, a company or a trust then you must have a separate business bank account for tax purposes.
You will require your personal ID and that of your partner (if required) and your business documents.
There are some really useful accounting and software packages on the market to help with managing your invoicing and payments. We outlined a few of our favourite off the shelf accounting and software packages for small business here.