Should I Have Separate Bank Accounts for Different Legal Entities?June 6, 2022 6:13 pm
Do you provide two services for different business clients but have one bank account for both companies? Two separate bank accounts may be better for your two distinct legal entities; let’s look at why.
Why should you have two bank accounts for your two businesses?
Nowadays, many people have two or more businesses, and if you’re one of those people, you should consider a dedicated bank account for each.
In fact, your bank may require you to have different accounts. Look at other banks to see the best offers regarding multiple business accounts.
1) Clearer financials.
As time goes on, you may less understand how well each business is doing financially, trust me. Having separate accounts allows any new lender to have a clearer picture of the details of your financial standings.
If the time arrives when you need to apply for a bank loan, showing separate financials makes it all easier.
2) Limit unforeseen future liability.
With one bank account for your various legal entities, you risk putting all of them at risk if something falls apart with one of them. If you are sued, it is in your favour to have clear separate accounts and legal entities.
3) Audit-prepped transactions.
Tax audits are part of life, an undesired lottery of sorts. Separating your business processes will help you in the event of a tax audit, it makes sense to keep your entities organized.
4) Cash flow management.
Separating bank account transactions helps you readily see the money flow for each business. This makes it easier to see the profits and losses. You must be able to respond quickly to your cash flow situation.
5) More precise tax returns.
Fewer mistakes are likely on your tax return. If you employ a bookkeeper or accountant, your tax return is completed more efficiently using separate accounts, working in your favour financially.
6) Efficient Bookkeeping.
Managing two or more sources of income and their payables and receivables is most manageable with a bookkeeper. Accounting software readily identifies which transactions belong to which business.
Should I have a separate account for my rental property?
You should have a separate account for your personal and rental property bank accounts. This will reduce financial risk and make your bookkeeping and accounting easier.
“Doing Business As” (DBA):
A sole proprietorship or partnership may choose to conduct a business under its own name or an alternative name, a DBA. Unless otherwise legally stated, you can have one bank account with multiple DBAs.
Make a sales file to track the income of each DBA and keep details of the records.
It is essential to have a dependable bookkeeping system to navigate a DBA.
You might also consider creating an umbrella company, one corporation with several businesses under it. It is possible to have one bank account that divides payments in these cases.
Call or email me, Sandra. I’m here to provide professional advice about your bookkeeping needs.
Tags: more than one legal business entity