As a small business owner, blending your personal and business finances together can be tempting. After all, you are your business, right? While it may seem more convenient to use just one bank account and credit card for both purposes, keeping your personal and business finances separate is crucial for a successful company. Here’s why:

Maintain Legal Protection
One of the biggest benefits of separating personal and business finances is that it helps protect your personal assets in the event of a lawsuit or bankruptcy involving your business. Suppose your business is set up as a corporation or LLC. In that case, keeping finances separate builds a legal firewall that prevents creditors from pursuing your personal assets like your home or personal bank accounts if the company faces money troubles. This personal asset protection is voided if you commingle funds.

Easier Accounting and Taxes
Having separate bank accounts and credit cards and accounting for personal versus business income and expenses makes accounting and filing taxes easier. There is no guesswork about which expenses were personal purchases versus legitimate business deductions. You can seamlessly track income, outlays, profits and losses — things that become hopelessly jumbled if your finances are combined.

Better Financial Management
When personal and business finances are mixed together in one account, it’s far more difficult to understand your business’s true financial position and profitability. You can’t make smart, informed decisions about expenditures, staffing, pricing, and growth plans when you can’t easily untangle the numbers. Keeping business finances separate allows you to manage your company’s money more strategically.

Polished Image with Partners and Clients
Finally, keeping your business finances separate through a dedicated business bank account and credit card presents a much more professional image when dealing with partners, investors, clients, and vendors. Operating your business through personal accounts can raise red flags about your organizational capabilities and commitment.

The Risks of Blending Personal and Business Finances
In contrast, blending or commingling your personal and business finances can create a legal mess if disputes or lawsuits are ever brought against your business. It can expose your personal assets, damage your credibility, make tax filing unbearably complex, and prevent you from understanding your true income and expenses as a business owner.

The bottom line? Even if you are operating a small side business out of your home, open a dedicated business banking account, get a business credit card, and maintain meticulous records separating all income and expenses related to your business from your personal finances. It’s an essential best practice for protecting yourself and operating your company like a true professional.