How to stay compliant with your business banking
At a glance
- Opening a separate business account is recommended – and sometimes compulsory – for small businesses and sole traders.
- A business account can also help you monitor cash flow and potentially secure business funding.
- Keeping personal finances separate can also help your business stay compliant at tax time.
- The best advice is from a qualified professional – so talk to an adviser for advice on your particular scenario.
Personal vs Business Account
It can be tempting for small business owners to use a single account for all financial transactions. Doing so can seem more efficient, for instance, by handling personal and business expenses all in one place, however it could create challenges in the long-term.
But setting up a business account separate from a personal account can actually be a good idea to ensure your banking stays compliant with tax regulations and it can give you access to benefits such as more effective cash flow tracking.
Here’s what you should know about ensuring your banking stays compliant.
Key business account requirements
The Australian Taxation Office (ATO) advises that small business owners and sole traders open a business account separate from an account handling personal expenses. For entities operating as a partnership, company or trust, it’s compulsory. For sole traders, the ATO recommends the same approach.
Maintaining accurate and comprehensive banking records is essential for effective finance management. When using a business account, the ATO recommends you:
- Maintain a record of all incomes and expenses for your business.
- Reconcile that record to ensure you’re aware of what’s entering and leaving your business account.
- Deposit all cash sales income into your business account regularly – this can help with reporting GST.
If you do choose to consolidate your finances, don’t forget to clearly indicate which expenses were made for personal, rather than business, reasons. The ATO suggests doing this by recording:
- Any amounts drawn for personal reasons from your business’s earnings.
- How you worked out what proportion of your earnings were for personal use rather than business.
Regardless of the exact setup of your finances, you should be keeping records of those finances for five years, according to the ATO. This includes contracts, loans and lease agreements.
Other benefits of a business account
In addition to staying compliant with regulations, keeping a separate business account can help small business owners to:
- Track cash flow. A clear picture of cash flow is unbeatable when tracking how you’re faring as a business. A business account can help you watch out for personal expenses made via that account that would be excluded from your business’s tax return.
- Maintain professionalism. Sending money to or from a business account can help give your business a more professional, and therefore more trustworthy, appearance – increasing the chances that a customer or client will want to continue doing business with you.
- Obtain funding. Opening a business account with a business lender such as Prospa can even help with obtaining funding, such as a small business loan. Having that existing relationship can make the application process simpler.
3 tips to help your business stay compliant
- Separate your finances. Although not always compulsory for small businesses, opening a business account can assist cash flow management, tax compliance and more.
- Educate yourself about ATO requirements. Further details on business accounts and the associated tax ramifications are available on the ATO website, including information about tax returns, online banking, business credit cards and more. All the information is there – you just need to go looking.
- Talk to an adviser. The best advice can only come from a qualified professional who is able to comment on your specific scenario.
Keeping tabs on all this information can help you adapt quickly to changes in cash flow and set you up to thrive. Find out how to make it simple with the Prospa Business Account – a free transaction account to help you manage your cash flow.
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