Key Takeaways
- Separating your business from your personal finances as much as possible will help you to stay organized, ensure your taxes are accurately filed, and manage cash flow
- Consider registering as an LLC to protect yourself from personal liability for your business
- Apply for EIN and DUNS numbers for tax & credit purposes
Setting your small business up for success in the long run means establishing a good foundation. Being proactive with your small business structure and finances now will save you time, money, and energy in the future.
Dane Colvin is a registered CPA and AVP of Finance and Operations at NEWITY and has worked with thousands of small business owners throughout their funding journey. Here is some advice he offers to new entrepreneurs who are feeling overwhelmed with the world of small business finances:
“I think the biggest thing, and something we see on the NEWITY side, is when you are starting a business, you want to make sure you’re completely separating it from your personal [finances].”
It’s best to establish this separation immediately. Many times, entrepreneurs will put off this type of clerical work for a later date. As their business grows and their task list expands, financial structure takes a backseat to more pressing matters.
If you plan to apply for small business financing in the future, the application process will go much more smoothly when you are able to easily distinguish between personal and business finances.
Additionally, when you file taxes, you’ll need to accurately report the income and deductible expenses of both your business and your personal finances, independent of one another.
Here are 5 steps to get you started with establishing separate accounts for your personal and business finances.
Registering Your Business
- Register your business as an LLC
LLC stands for “limited liability company”. This means that you cannot be held personally liable for your business’s debts. This is a great business structure if you’re looking to protect your personal assets while avoiding the more complicated structure of a corporation.
You can register as an LLC by selecting a unique business name and filing Articles of Organization with your state’s Secretary of State office. Most states allow you to file by mail. - Apply for an Employer Identification Number
An Employer Identification Number (EIN) is a nine-digit number assigned to your business by the IRS for tax purposes. This number identifies your business when you file your taxes, open business bank accounts, apply for business licenses, and more.
You can apply for an EIN for free through the IRS website using their EIN Assistant or by downloading form SS-4 and sending it to the IRS by mail or by fax. -
Apply for a DUNS number
A DUNS number is a 9-digit number your business receives through Dun & Bradstreet used for credit reporting. The sooner you do this, the sooner you can start building your business credit.
This number is free to request from Dun & Bradstreet via their website and typically only takes 1-2 business days to receive. -
Open a business checking account
Using your personal checking account for your small business can complicate your finances on several levels. By opening a business checking account, you can keep your personal and business expenses separate, stay organized, and manage your cash flow efficiently. -
Apply for a business credit card
This is a great way to start building your business credit as soon as possible. If you’re stuck deciding on which credit card to go with, Colvin recommends applying for a card that offers extra points in categories that your business often makes purchases in.
“I think we see a lot of potential borrowers operate their business out of their personal bank account. Maybe it’s easier, it’s less hoops to jump through, but when you’re going to apply for [financing in the future], it makes it very muddy to identify what’s business related and what’s personal related.”
