Here’s Why Not to Use Personal Account for Business Expenses

Bertrand Théaud
Published: 17 Mar 2020

Personal account over Business account can be confusing for any Business Owner. .Launching your business is an exciting experience. It is also a difficult one as your days are likely not long enough to deal with everything you want to do. And so, you may consider that opening a business bank account is not the priority.

After all, there is no legal requirement in Hong Kong (and many other countries) for using a business bank account to run your business, so why bother? Just use your personal bank account to pay for business expenses.

This could not be further from the truth. Keeping track of your business expenses in a business account will help you save time, and possibly trouble.

1. What are business expenses?

A business expense is any cost incurred in relation to the running of your business. By contrast, personal expenses are those incurred to buy something for private use, i.e. not related to your business.

Common business expenses include:
  • Rent, utilities and phones
  • Office equipment and supplies
  • Salaries
  • Insurance premium
  • Legal and other professional fees
  • Consulting, advertising, marketing and other promotion fees

2. Personal accounts are reserved for personal expenses

As your business grows, the number and volume of your business expenses will grow as well.

At some point, using your personal bank account for business expenses may be noticed by your bank. If that happens, your bank will very likely require that you reserve the use of your personal account for personal expenses. You may ignore this requirement but then you run the risk of having your personal account closed by the bank.

One reason why your bank may not accept the business use of your personal account is simply because they charge different fees for personal and business accounts (and usually fees are higher for business account!).

You may want to check the terms & conditions of your personal bank account to determine what are the potential consequences of using it for business expenses.

3. Keep your bookkeeping and accounting in good order

Carrying out a business means dealing with bookkeeping and accounting. Definitely not exciting but there is no way around it. And the reason for that is very simple: your bookkeeping and accounting will serve as the basis to determine if your business must pay taxes and all governments want to have this information.

So, if you want to avoid trouble with your tax authorities, start with having your books of accounts in order.

On this note, having a business account will help you save some valuable time you would rather use to focus on your business. Simply because all of your business expenses will be recorded from your business account, rather than being mixed with your personal expenses in your personal bank account.

4. Reducing your taxes

The general principle is that business expenses are tax-deductible. It means that they can be deducted from the revenue generated by your business, and so they lower your profit on which tax are calculated.

In other words, tracking your business expenses will lead to you reducing your tax bill.

It is definitely good news but be aware that there are some limitations regarding the tax-deductibility of business expenses. For instance, you may need to buy a car for your business but if you buy a Mercedes, the tax office may challenge the tax deductibility of this purchase. So it’s better to check the detailed rules for tax deductibility with your accountant beforehand.

Assuming that you have the motivation to reduce your taxes, it is in your interest to keep your business expenses separate from your personal expenses. And having a business account is the simplest way to identify your business expenses.

5. Avoid losing out on potential clients

Some clients, especially if they are large companies, may refuse to make payment to your personal bank account.

As compliance rules get stricter every year, these clients will insist to make their payments to a bank account opened under the name of your company. If you put yourself in their shoes, this requirement makes perfect sense: they want to have a match between the name of the company issuing the invoice and the name of the bank account to which they make the payment.

In order to avoid losing out on potential clients, you should not wait until you encounter this issue. Be proactive and open a business account ASAP.

6. Raising funds

Should you decide to raise funds, you can be certain that investors will carry out their due diligence on your business.

This will definitely include the review of your bookkeeping and accounting as investors want to understand the financial health of your business (they may also want to check your bank accounts).

Having a business bank account leads to well-organized bookkeeping and accounting, which will help you legitimize your business and smoothen discussions with potential investors.

7. Does the legal form of your business matter?

As you start your business, you may decide to run it as a sole proprietorship or with a company.

The key difference is that a sole proprietorship is not a legal entity, and therefore as a business owner, you are personally responsible for all the debts related to the business. By contrast, a company is a legal entity separate from the business owner and the latter does not bear the risk of reimbursing the debts of the company.

However, no matter the legal form of your business, the fundamentals remain the same, as described before in this article. You must do the bookkeeping and accounting for your business, pay taxes, always bring in new clients and possibly search investors.

So, in order to avoid trouble, don’t take the shortcut of using your personal bank account for business expenses and open a business account instead.

Now that you are convinced (hopefully) of the need to have a business account, the question is how to open it.

And here is the paradox: you want to have a business account to avoid some problems, but the reality is that you will very likely run into problems when opening a business account. Find in this other article all the reasons why.

A good solution is to open a business account with Statrys to save time and money:

  • Application is 100% online – no need to visit a branch
  • 10 minutes of your time – skip your next coffee break, and you will finish the application
  • Quick response – guaranteed to hear back from us within 48 hours after the request is submitted.
  • No account opening fee (except for special companies), no initial deposit, no minimum balance – our fees are easy to understand and transparent.

Your Statrys business account comes with:

author
Bertrand Théaud

Bertrand Théaud is the Founder of Statrys. His entrepreneurial journey has inevitably exposed him to the difficulty in dealing with banks, especially in Hong Kong. When he realised the number of SMEs going through the same challenging experience, he decided to start Statrys: a digital alternative to traditional banks specifically designed to serve the needs of Asian SMEs and start-ups...

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