CHAPTER 4-: This is the fourth chapter of “The Complete Guide to Starting a Cleaning Business.” Getting caught up in the excitement of opening and running your very first enterprise is actually a cardinal sin in the world of business. As an entrepreneur, you must realize that doing business in the real world is anything but child’s play, especially when you are trying to make a name for yourself in the cleaning business where the industry is highly competitive. New companies just like yours will be jostling to secure a spot in the top tier of the industry.
The moment you perceive your business as fun and games, is the moment you jeopardize the future of your company. It goes without saying that a novice entrepreneur cannot help but feel overwhelmed with joyful emotions after getting his business officially recognized by the state authorities. When you see those stamps and seals on the legal papers, it does indeed make you feel proud of your minor accomplishment. With that being said, these jubilant emotions should be converted into the motivation and the determination you need to take the business to the next level. One of the first steps towards climbing up to that next level involves opening a dedicated business bank account.
If you happen to have a conversation with any expert in the field of finance, they will tell you that one of the fundamental pillars of a successful business is the ability to make clear distinctions between business finances and personal finances. Why is this so important?
To answer it in very simple terms, separating your business finance from your personal finance allows you to protect your assets better and also ensures that business operations run as smoothly as you expect them to run. Staying off the grid may be awe inspiring if you are a countryside cult follower, but when you are trying to make a living in the big city by cleaning the workplaces and homes of other people, you cannot possibly expect to rely on the piggy bank in your house.
Initially, it seems quite convenient for you, especially if you are a sole proprietor, to have one solitary bank account where you accumulate all the revenue of your business and your personal earnings. Under such circumstances, all you have to do to reap the rewards of your hard work is head over to the bank at the end of the month and draw out a major sum of money. If the world of finance was that easy and uncomplicated, then perhaps 5th graders could qualify as financial experts.
No matter how palatable the idea of having one major bank account may seem to you, you must remember that inability to separate your business and personal finances will undoubtedly backfire on you sooner rather than later. If you are still struggling to be convinced, then pay heed to the following 5 reasons why mixing personal banking with your business banking could churn out a recipe for disaster.
5 Reasons Why You Must Separate your Personal Bank Account from your Business Bank Account
1) The Business Deduction Rule-: If you are not familiar with this term, then it’s time you became acquainted with it. According to this thumb rule of business, the expenses of a business can only be deducted by the business itself. The gravity of this statement is such that it is worth a repetition.
So once again, only businesses should be handling and deducting the business expenses. A second party intervention is not welcome. The money used to conduct the day to day operations of your business should never blend in with the money you use to buy your grocery. If your business is running on your personal bank account, then you will have a big problem in trying to explain to the government that the business you run is not simply a hobby of yours. This could even lead to a cancellation of your business license.
2) Tax Tribulations-: One of your primary objectives as the owner of a cleaning business is to make sure that you stay absolutely clear of any kind of tax related complications. Not only do these problems hurt your finance, but they also put a glaring dent on your shining reputation. The last thing you want is to have your rivals in the cleaning industry label your company as a tax evader and tax fraud.
When filing taxes for yourself and your business, it is mandatory that you record each and every single transaction separately. If you maintain one single bank account, then going through all the transactions will be a much bigger hassle than you could ever imagine. As the business owner of a upstart cleaning company, you should not be wasting your precious hours in handling and separating these transactions at the eleventh hour.
This is a burden and time consumption that you can certainly do without by simply opening a dedicated business bank account for your cleaning service company. Furthermore, in the process of going through these individual transactions, you may end up ignoring a few that may put you in the bad books of the tax authorities.
3) The Audit Trail-: Any commendable textbook on business will strongly recommend you to maintain a separate bank account for your business. However, the law of the state does not actually require you to do that. What is needed from you is clean, accurate, permanent and complete records of income and deductions. As long as you are able to produce that, you will be fine according to the law. The problem lies in facing the sheer difficulty of producing these clear records while being bombarded with time constraints. Hence you should be audited in order to attain a “clear audit trail” for your company. This will not only save you time, but also make your life much easier and help you maintain a healthy relationship with the state authorities.
4) Missed/Overlooked Deductions-: This has been mentioned before in the list, but it is now time for you to understand and learn the significance of never missing or overlooking deductions. When you have a mammoth bank account that is in charge of the finances of both your business and personal transactions, it becomes extremely easy for you to miss deductions and ignore them completely.
This lack of concentration when handling finance can cost you big time in terms of money and more importantly time. You may just miss out on a big money order to clean a mega shopping mall while attending to your missed deductions and solving the consequent problems. These careless errors plant the seeds of destruction in any business, even in the major corporations worldwide. If you think that your brand new cleaning business will be immune to the ills of careless deduction errors, then you are sadly mistaken.
5) Unprofessional Conduct-: As the owner of a cleaning company, you will be banking hugely on your human resources. Your staff will be the pivot of your service providing business. As a result, you have to dish out several pay checks to your employees at the end of the month. How does this all relate to having a dedicated bank account?
Well put yourself in your shoes 2 or 3 months from now. When you will be paying your employees or other companies whose services you have attained, do you really think it would be highly professional of you to reimburse them through personal checks? Unprofessional conduct does not get any worse than this. This is why having a dedicated bank account is so important. It allows you to pay people through your company’s official check book. Not only does it add a touch of class to the way you run your operations, but it enhances the legitimacy of your business as a well established cleaning company.
It is worth noting that the nature of a cleaning service business does not really permit you to rely on your own personal bank account. Cleaning commercial and residential complexes and providing maid and janitorial services is nothing like selling hotdogs or magazine in the street. This is a big money business, where your clients will be rewarding you with fat pay checks.
If you do not have a dedicated bank account in which to store the money that you earn from your business, then put yourself at risk of a financial disaster sometime in the not so distant future. Regardless of whether you have 1 client under the fold of your business or 100, it is absolutely imperative that your cleaning business receives the ownership of a bank account that will financially support it through every step of its progress and development.
Being able to separate your company’s finance from your own personal finance has a lot to do with how you see yourself with respect to your business. Sure enough, you will one day be the owner of a fine cleaning company, but that will not change the fact that you will actually be working for the company. It may sound like a philosophical paradox, but the employer is in reality the most significant employee of the company. Similar to how an employee’s finances will never get in the way of his or her company’s finances, you are supposed to make sure that your financial concerns as a “working entrepreneur” is not identical to your concerns as the owner of the business. The only time your personal finance can be associated with that of your business is when your business yields money that rightfully belongs to you after bearing all the expenses of the company.
Now that you understand the importance of opening a dedicated business bank account, it is up to you to find out the simplest and easiest way of fulfilling this financial goal. Your approach towards opening a bank account will differ depending on whether your business is a sole proprietor, a LLC or a corporation.
Most sole proprietors and some LLC entrepreneurs have the massive misconception that dedicated business bank accounts are only useful to those who are in charge of running international corporations that are always engaged in all important overseas business. This is not true. As long as you are not running a hotdog stand that was talked about before, you will be in need of a bank account regardless of how small or big your company is. In the case that you are a sole proprietor, you will need the following two things to acquire a business banking account.
- Your social security number
- A DBA
It is worth mentioning that both your business assets and your personal assets will be in hot water if your business is to be sued while you take on the role of a sole proprietor. Perhaps this is the reason why most entrepreneurs tend to convert their company into a LLC. Whether you want to keep the tag of a sole proprietor or expand to LLC will depend entirely on how many employees you hire and the number of clients that are you aiming to satisfy in the initial stages through your cleaning services.
The DBA mentioned above refers to “Doing Business As”. This allows you to operate a business under a name that is different from yours. For example, if your name is Alan Jefferson, then you can open a cleaning a business by the name of Jefferson Janitorial Services once you have acquired the DBA to do so. If you are planning to put the LLC tag on your cleaning company, then the following are required to get your business its very own exclusive bank account.
- The LLC EIN-: This is a Federal Tax ID form that will be provided to you by the IRS.
- The Articles of Organization-: This form is provided by the Secretary of the State and it acts as an approval and affirmation of your LLC status.
- The Operating Agreement-: This is a formal statement that addresses your company and the members included in your business.
Drawing a clear line of distinction between your personal finance and your business finance is an elementary step towards developing healthy business habits and practices. The more rigorous you are in maintaining these practices, the greater success you can expect from your cleaning service business. More than anything, opening an exclusive business account allows your cleaning business to become more dignified and professional in the eyes of others. Perhaps a business bank account is what you need to keep people involved in other sectors from looking down upon your business and belittling it as a menial profession. Whichever the case is, the dedicated business bank account will turn out to be a lifesaver both in the short and the long run.
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