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10 Important Reasons Solopreneurs Shouldn’t Mix Their Business And Personal Banking

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10 Important Reasons Solopreneurs Shouldn’t Mix Their Business And Personal Banking

When a solopreneur is first starting out, they may wonder whether it’s worthwhile to establish a business banking account that is separate from their personal one. They may opt to handle their business finances via their personal bank account because they believe their company isn’t established or complex enough yet to warrant a separate account, that they don’t want the “hassle” of setting up a business account, or that they can get the same benefits by using a single shared account. However, many financial experts strongly caution against solopreneurs taking this route.

Below, 10 Forbes Finance Council members share why they believe solopreneurs shouldn’t mix their business and personal banking. Read their insights to learn why it can be best to keep your personal and business transactions and records separated—even if you’re the only person involved with your business.

1. You Can’t Ensure Proper Accounting

The short answer is “no”—don’t mix personal and business banking. Separate bank accounts mean that proper accounting is going to occur. In addition, if the IRS decides to audit the business, the existence of separate accounts will help establish that one is running a business, not engaged in a hobby. – Dr. Philip Fischer, Micro Macro Infinity

2. You May Not Be Able To Get A Business Loan

Solopreneurs should never mix business and personal banking—not if they want to get a business loan one day. Commingling your cash is a bad habit that won’t pass muster with most conventional business lenders. – Christopher Hurn, Fountainhead Commercial Capital


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3. Investors May Hesitate To Work With You

It’s impossible to know what the future holds, and you may want to raise external capital at a later date. If you do not have clean books (for example, financial records), investors will be hesitant to partner with you. It’s a small operational cost to pay now to keep everything separate, and it may save you a lot of headaches later. – Rebecca Mitchem, Neotribe Ventures

4. It Can Make It Harder To Raise Capital

Solopreneurs should keep business banking separate from personal banking. If the business is successful, the solopreneur may be interested in taking on growth capital (via debt or equity) at some point to help fund its expansion. Having separate banking with clean financial reporting will streamline the capital-raising process significantly. – Sean Frank, Cloud Equity Group

5. It Creates Headaches At Tax Time

Personal and business banking should never be mixed—even for sole proprietors where there is no legal separation between the business and owner. Segregation of funds is crucial to accurate accounting, and commingling of funds, while not strictly prohibited in some cases, always creates headaches at tax time. – Vlad Rusz, Centaur Digital Corp

6. You Could Miss Out On Incentive Programs

A business and personal bank account should never be mixed or misused. If you are using a personal account for business expenses, you may be missing out on bank incentive programs and potential tax write-offs for your business. It is smart to keep personal and business expenses separate and never pierce your corporate veil. – Joseph Lustberg, Upwise Capital

7. You May Be Targeted For An Audit

Keep everything clean and separate for tax, liability and funding reasons. We’ve seen business owners get declined for financing because their business revenue was in their personal accounts. You can also have your corporate veil pierced or be the subject of an audit, too, which few people know. All your business revenue should go into your business account, never your personal. – Joe Camberato, National Business Capital

8. You May Not Be Able To Take Certain Tax Deductions

Setting up a separate business account is an absolute must for any solopreneurs! There is little to no cost to setting up a bank account, and if you don’t separate your personal and business accounts, you may eliminate your ability to take certain necessary tax deductions. Keeping business and personal accounts separated will save you massive headaches when you get audited—and remember, it’s not if you will be audited, it’s when. – Joseph Orseno, Tiltify

9. It’s Likely A Sign You’re Not Properly Compensating Yourself

Separating personal and business bank accounts is always good practice. Solopreneurs should do this with the future in mind. Often, the combination happens organically because the owner has not properly compensated themselves and is supplementing their income (for example, with a car allowance or other expenses of this nature). Set a proper compensation goal for yourself, and keep the books separate to eliminate the future unraveling of data. – Cynthia Hemingway, Fourlane, Inc.

10. You’re Compromising Your Liability Protection And Clouding The View Of Your Company’s Performance

Rewards points from personal credit cards tend to be a very common reason for solopreneurs to use personal banking for business uses. It’s tempting, but don’t do it. You end up compromising your liability protection, it’s more complicated at tax time when identifying business expenses for deductions and you lose a sense of how your business is truly performing. – Sameer Gulati, ZenBusiness

https://www.forbes.com/sites/forbesfinancecouncil/2022/09/16/10-important-reasons-solopreneurs-shouldnt-mix-their-business-and-personal-banking/