Working as a sole proprietor in a freelance business is one of the simpler ways to set up your commercial venture, but it does bring with it some confusion. Your business and personal budgets often combine into one, and that can lead to shortages or mixed-up records if you aren't careful. Getting a separate business bank account is an option, but it is also another item to keep track of, and it can have some financial effects that you weren't expecting. Still, it's worth considering.
Better Separation of Expenses
A separate business account allows you to move money that is specifically for your business expenses away from the money you'd use for personal things like bills and food. It simply provides better separation so that you have less trouble staying within your budgets. It also allows you to keep a surplus on hand for unusual expenses without making last-minute cuts to your personal budget. If you're trying to keep your business and personal expenses apart, then a separate account is of course a good idea.
Extra Fees for Low Earnings and Balance
However, many banks and even credit unions have minimum balance requirements for their accounts, with a monthly fee as the penalty for being under that minimum. If your business hits a rough patch and your balance dwindles, you could end up with fees taking even more money out of your account. People whose business profits are very small might not benefit that much because of all the fees.
There's also the issue of salary. If you're not an LLC, and you're just a freelancer who files a Schedule C and Schedule SE instead of business taxes, you don't need to set a salary for yourself. But if you do decide to become an LLC and need to create a salary for yourself, you have to look at how that will affect how much you put in the business account. Do you send the money there first and pay yourself a salary by transferring money into your personal account? Do you have a third account for pay that you divide up between your personal salary account and the business expense account? You need to talk to a business lawyer about that one.
Take a look at your pay over the past few years and see if you have enough to avoid fees by having the minimum balance required, and take a look at your plans for incorporation. Having an account that is dedicated solely to your business can be a big help if you are in the right situation.
Hello, my name is Mark Thomure and this is a blog that I've written about the various types of money services that are available to individuals and business owners. For convenience and in the event of an emergency, it's important to know all the accessible options. Before these services are needed, it's important to find out about the various fees, requirements and terms. I've learned about the diversity of money services by doing research and speaking with professionals. Since many people don't know about the differences in these services, I thought I would make all the information available in this blog. After reading through the articles on my blog, you'll also be able to make informed decisions about the different categories of money services.