Opening a separate bank account is a step that a lot of solopreneurs miss in setting up their business. Especially in the early days when there aren’t too many transactions, it seems to make perfect sense to use your personal account for business use. I admit, I did this early on. I just didn’t see the point of a separate bank account when I had so few payments per month and some of them were through Paypal.
I used a spreadsheet to keep track of income and expenses before I had a dedicated bank account. While it did the job, it made my taxes much harder than they had to be. I had to go back and categorize everything according to the categories on the tax forms by hand. I also had to record everything twice – once in the account and again on my spreadsheet. I had to be extra careful to remember to add income and expenses to my spreadsheet.
Perhaps the biggest drawback to any pieced together system for banking is lack of information to run your business. There’s no way to see which services are making money. There’s no way to see what you are spending money on. You can’t tell who your biggest customers are or get any meaningful information to help you make better business decisions.
It’s almost impossible to get things right on the first try in your business. Success is a process of trying new things, measuring if they work and making changes. If you can’t even measure the most basic thing in your business – what is changing your bank balance – you’ve got almost no way to course correct.
If you don’t already have a dedicated bank account, open one now. You’ve got over two months until the new calendar year, and if you do it now you’ll be able to have your entire next year with your dedicated bank account. It may not help you this year, but next year will be much easier in terms of gathering data and filling out your taxes.
There are a few other benefits of a dedicated bank account. You can customize the name that appears on your checks, which may help you look more credible to people you pay. Having a dedicated bank account may also help you feel more like a “real” business. When you work at home, by yourself and do everything yourself it can be hard to feel legitimate. A separate bank account also helps you maintain some separation of your personal life and your business live which is a constant challenge for solopreneurs. A final advantage is that you can link a bookkeeping software to your dedicated business account making it easy to run reports and see where you are making and spending money.
I cover this in a lot more detail in my system for setting up a solopreneur business “The ABC’s of a Successful Solopreneur Business.” The system lays out everything you need to do to get your business set up properly in a step by step manner. Get more information on the system including some great bonuses here: The ABC’s of a Successful Solopreneur Business.
Do you have a dedicated bank account for your solopreneur business? If not, how do you manage your finances? Tell me about it in the comments.