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Seven reason why informal businesses should have a business bank account

Many small businesses are found to be still running their businesses from their personal accounts.

Business Development Manager at FNB Commercial, Francinah Phalatsi, says “The misconception is that running your business together with personal finances has the potential to save you money and spares you the hassles of opening and running separate bank accounts. However, there are several considerations which offset any perceived benefits.”

These considerations include:

  1. Improved Efficiencies: Keeping your business and personal financial activities separate decreases the complexity of understanding the performance of your business. The alternative is to manually separate the respective activities, which is time consuming and subject to human error.
  2. Meticulous Record Keeping: This allows you to easily see how much money is coming in and going out of your business. It also opens the door to categorising expenses, connecting accounting software to simplify your accounting, and seeing real-time cash flow.
  3. Understanding of Business Finances – by separating your business finances from your personal finances you are able to easily track, forecast and respond to fluctuations in your finances.
  4. Business Valuation – In the event that at some point in time you wish to value your business or even sell it you will require a clear separation of your business finances and a historic record of business activity, which a separate bank account will support.
  5. Credit Applications: Many businesses do not yet have audited financial statements as a record of financial performance. This is where business bank statements come in handy, as a record of your trading activity – from which financial institutions can make lending decisions. It is important to note that business behaviour also counts. Staying on time with payments will help you improve a business credit score, and it’s easier to track business activity without personal finances muddling your statements.
  6. Professionalism: Having a business bank account gives your business a professional image and demonstrates that you are serious about your business. It also makes it easier for you to receive payments from customers, pay bills, pay employees and manage your finances.
  7. Compliance: Using a business bank account helps you to comply with regulatory requirements for businesses by allowing you to keep accurate financial records, which is helpful when it comes time to pay taxes.
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  1. Stock market II: According to the Economist (2016), the JSE ranks 18th in terms of “largest market capitalisation” out of 140 countries. Even during these difficult economic circumstances it is interesting to note that South African companies are still deemed valuable and are resilient during tough times. This resilience indicates that one can still start-up a dream business in these conditions.