As bookkeepers that specialise in working with tradespeople, we’ve helped a few start-ups in our time! This is how it often goes… You get your first few jobs, the money lands in your personal account, you pay for materials on the same card you use for the weekly shop, and it all seems fine. Setting up a separate business account doesn’t always cross your mind when you’re busy on the tools. The problem is, mixing business and personal finances might seem harmless, but it can make everything harder. Here’s why it matters more than you might think.
Mixing Business and Personal Finances? 3 Reasons Not To.
1: Know What Your Business Is Actually Making
If your business income and personal spending are running through the same account, you have no clear idea what your business is earning. This also means you don’t know whether it’s genuinely profitable.
You might happily get paid £1,800 for a job on a Tuesday. But then there’s £90 for fuel, £45 for a new drill bit, a takeaway on Thursday, the kids’ school trip payment, and a few other bits and pieces. By Friday, your account looks a fair bit lighter, and you’re not entirely sure why.
That’s the problem with mixing business and personal finances. You can’t easily see what’s coming in from customers, what you’re spending on the business, and what you’re using personally. Without knowing that, it’s very difficult to understand whether you’re charging the correct hourly rate, whether you can afford a van upgrade, or whether you’re actually making decent money at all.
2: Save Yourself a Headache at Tax Time
Nobody enjoys sorting out their finances for a Self-Assessment return. But it’s much worse when you’ve spent the year running everything through one account.
Come January, you’ll be scrolling back through twelve months of transactions trying to remember whether that £60 payment was for materials or a birthday present. It takes time, it’s easy to make mistakes, and mistakes can mean either paying more tax than you need to or underpaying and landing yourself in hot water with HMRC.
A separate business account changes this completely. Your business income goes in, business expenses come out, and everything is in one place. Your bookkeeper or accountant can work through it quickly and accurately. You spend less time (or money) on admin, fewer things get missed, and there’s far less chance of errors that cost you money.
3: Treat Your Business Like a Business
If you want to run a successful business, you need to treat your work like a business! Pay yourself a regular amount, keep money aside for tax, and plan ahead. None of that is particularly complicated, but it does require you to separate your business finances from your personal ones.
If you haven’t separated your accounts, it’s very easy to spend money that wasn’t really yours to spend. It might look like your account has a bit of extra cash, but some of that really belongs to HMRC, and you might not have counted on your supplier’s invoice coming in at the end of the month.
Finally, a business account looks more professional. Customers paying into a named business account, invoices that match up cleanly with bank records, everything tidy and in order. All of this looks like you’re running a proper operation rather than one that pays for a Friday night takeaway out of the same pot as last week’s materials.
It Is Worth Sorting Out
Opening a business account is much easier than you might think. In fact, you can even do it online. Once you’ve set one up, the benefits are immediate and ongoing.
You’ll know what your business is actually making. You’ll spend less time on admin at tax time, and you’ll be less likely to accidentally spend money that should be set aside for tax. And you’ll have a much clearer picture of how your business is doing and where it’s heading.
And, if you’d like straightforward bookkeeping support without the jargon, get in touch. We work with tradespeople in West Sussex and around the UK, and we’re happy to help you get things in order.