S7E5: Business Bank Accounts & Simple Money Rules Every Entrepreneur Needs

⚠️ Disclaimer: This podcast is for informational and educational purposes only. It is not financial, legal, or tax advice. Always consult with a qualified professional before making financial decisions.

Join the Keep It Simple Squad (K.I.$.$.): https://go.pamprior.com/keep-it-simple-squad 

Starting a business comes with a million “shoulds”… but which ones actually matter? 💡

In this episode of Cash Flow with Pam Prior, Pam answers the most common finance questions entrepreneurs ask—including the big one: Do you really need a business bank account?

You’ll learn:

✅ Why a separate business bank account is more than just a “nice to have”

✅ The truth about financial “shoulds” (and which ones actually matter)

✅ How separating your money protects you, simplifies taxes, and builds confidence

✅ What to do when your balance is low and you’re just getting started

✅ Simple rules that set you up for long-term success

Pam keeps it real, keeps it simple, and keeps it focused on helping you run your business smarter, not harder.

🎙️ If you’ve been overwhelmed by all the financial “advice” out there, this episode clears the noise and gives you what actually works.

Transcript

0:00

Foreign. Welcome back to the Cash Flow podcast. As you probably know, we're in the middle of our Keep It Simple Stupid series. So I am taking all of entrepreneurs questions that I can find and I am giving simple, short, to the point answers. The stupid's about me going crazy with complication, not about the question, because there's no stupid question. So I am Pam Prior, your Keep it simple squad leader, and we're going to jump right in with this week's questions. One of the ones I get all the time, and I popped it right down here on my list, is do I need a business bank account? All right, let's keep it simple. The answer is no. But I'm going to change the question up a little bit and say, should I have a business bank account? And the answer is actually, yes. Couple things before I go into why is you can have a bank account for your business that's not actually a business account. Like, you can do this without ever setting up your company as a business because you can literally go to your bank, open another personal checking account, and just use it for your business only. Okay? So don't worry that creating a business bank account means you have to go through all the legal shenanigans to create a business, get a government number, all that kind of stuff. You can do it just as you as a freelancer, as an entrepreneur who's always just been using your own Social Security number, you just need to go open a personal banking account. When I first started my business, I did it at my own bank. I went in and said, I need another checking account, and then I started using that one for the business. So now let's jump into the why is it important to have a separate account for your business? Like I said, it's not necessary. I think it's just important for your sake, for every entrepreneur's sake. Because there are a few things that it allows you to do. The first thing has to do with mindset. The minute you create that second account, you've created a business in your head. You're no longer a hobbyist. You're no longer just kind of testing the waters and seeing if this might work. There's a psychological change in your whole mindset when there is a separate account for collecting the money that you make and paying your expenses. Okay, so that's the first thing. I'm going to dive into that a little bit. But that's the first thing, very simple, the psychological value of it. The second one, a little more obvious, is it keeps things separate for you Right. At the end of the year, you're going to have to file a tax return. If you have all of your business stuff in one checking account, you can often get away without having a bookkeeper. Have all your information in one place, one checking account, and boom, your taxes are easy to get done. Okay, that's the second thing. The third thing is when you want to know how your business is performing for your own sake, forget the tax accountant. When you want to know if you're making money or losing money, you can easily tell that, because you can figure out or know whether that business bank account is giving you money that you're putting in your personal account or if you're continually having to put money into that business account. Okay. So it gives you a real sense of the progress you're making. Because what I'll tell you is when we all start out, we're putting money in the business, and it seems endless. Sometimes it's like, okay, I. I don't have any money in the business. I got to put more money in the business checking account. But if you have that account separate, you can keep track of how much you're doing that. The second thing that will drive is it'll teach you to pay yourself first, because you're all of a sudden going to go in your head, God, I keep sending money that way over to that account. I want some money coming back this way. So it'll start to give you a sense of the fact that you are actually funding something that should pay you back someday. And the very cool thing about having a separate account is when that balance starts to build up because your income is higher than your expenses, is when the balance does start building up in that checking account is you're going to very easily be able to go, hey, it's made money and I can pay myself. And one of the things you'll always hear me say is pay yourself first. So, circling back to keeping it simple, do you need a business bank account? No. Would it make it a lot easier for you and put you in a much better headspace for being a business owner and, and serve you in the long run? Absolutely. But remember, having a separate account for your business doesn't mean you actually have to have set up a business. All right, that's the first question. Hopefully that made a lot of sense, because the next question is the second most often question that's asked to me. Okay, so here's question two, which is kind of related. And I get this one usually second right after the first question, do I Need to set up a business. All right, again, the answer is absolutely not. And especially early on, if you're still kind of feeling things out, you're not sure which way you're going to go, this might be just something you're doing as a side hustle and you still got a full time job, or you may be trying out different things before you pick which route you want to go. There's no reason to set up that business yet necessarily right out of the gate. However, two cautions on this, okay? If you're doing something where it's possible that one of your clients might sue you for something, be upset with how you've provided service, you've caused them harm in their minds, and they decide to sue you. If you haven't set up a business entity, then they can come after all your personal money, okay? Your personal money if you're married, your partner, or your wife's or your spouse's personal money. So the very first reason that I see for setting up a business entity isn't actually doesn't have, have anything to do with taxes or running a business. It has to do with protecting your personal money. So, and that's why this kind of goes along with the last question. If you have a separate bank account and if you actually go through the process to create yourself a business, then if you ever piss a client off and they decide to come sue you, it's happened to a lot of us, by the way. It's just one of those things that happens. Then they can literally get or take all of the money from your business account. But most times they can't get to your personal money. Okay? So another reason for having a business bank account is if you pay yourself right on a regular basis, then the money in that business account will only be what you get to spend in your business, right? And they won't have access to what you've paid yourself per personally. Now, there are tons of nuances to that, but we're keeping it simple here. The simple answer is the first reason to set up a business is to protect yourself from liability. To perfect your personal stuff. Your house, your car, your dogs, all of it from anybody getting at it. It sets up this kind of steel curtain between you and the business and says, sure, you can, you can go up my business, but you can't get through to me. It's not perfect in all worlds, but in most situations, that's what happens. Again, this is not financial advice. We put that as a disclaimer at the beginning of all of this stuff, this is just me sharing some simple answers to very, very common questions. Okay? The second reason to set up a business entity is, again, psychological. Because I'll tell you, for everybody that I've worked with that set up a business entity, including myself, when you get that piece of paper back that says, you know, your business, Priorities Group in my case is like, established, and it's Priorities Group Inc. Or, you know, Media Press LLC or, you know, Coaching Ltd. Whatever it is that you do set up, it feels pretty cool. And it's another one of those moves from I'm kind of playing at this thing to, yeah, I've started a business. And then to follow along on that, a third reason to do it is one of the things we often forget because we don't pay ourselves first, is that we spend a lot of time putting money into our business. Having a separate bank account. Having the separate business makes it very clear to us when we're putting money into it or when it's paying us. And one of the things I tell every client that I want to pay attention to and I, and I want to pay an incredible amount of attention to is how much is that business paying you? And if it's a separate entity, it's kind of just like you've got a job. It lets you think of it in a way that says, wait a minute, if I was working for anybody else that had a business, I'd be paid. I'm working for this business. I need to get paid. And it takes some of those decisions that you might make in the business and maybe want to spend more money in the business, buy more stuff, which I'm guilty of. It makes you go, wait a minute, no, I'm not going to buy that new stuff until I pay myself personally. Okay? So that's just another really important win for actually setting up a business. So it's really mostly for legal protection, first off the bat. Then it's to the psychological mindset thing, because it's very cool to actually own a business. I'll tell you, the minute you do it, it's. It's a real. It's a head game. And then the third is it will help with taxes eventually, because you will make money in your business and you will make cash hand over foot. If I have my way for you, you want a business because there are a number of ways that you can get some real tax advantages by having the business. Okay? And so now I'm going to combine answers 1 and 2. Should I get a bank account? Should I Get a business set up. If you decide the answer is yes to both of those questions, then you've done a couple things. Everything's in one place, so it's easy for taxes. You know, very clearly whether you're funding the business or the business is funding you, which is ultimately where you want to get. And you're legally protected from a lot of issues that might otherwise reach into your personal funds. Again, not financial advice, but just some of the good reasons to set up a business entity. Okay, we got time for one more. Francis. Okay, one more. This goes actually, along with the other two. That was a really nice clump of questions that we got there. Do I need to get a bookkeeping software? Okay. And the answer here, unlike the other two, very simply is no, you don't. And if you have a separate bank account where you're doing your business accounting. I know that was sneaky of me. But if you have that separate account, you really don't have to have a bookkeeping software, because all that a bookkeeping software does is take what's happening in your checking account and make it nice and neat for the tax accountant. If you at bare bones, it does a lot more. Don't get me wrong. But we're keeping it simple here. You're just starting out, you know, not a lot going on with the finances in the business. There's. There are tons of other reasons to get a bookkeeping software. I'm just talking bare bones here. Do you have to have one? The answer is no. Because what you can do, if you literally have all of your business expenses in one checking account, you can send your tax accountant the statement or the download from that checking account, and boom, they have everything they need to do your taxes. Okay, so you don't need a bookkeeping software. Might there be a reason to get a bookkeeping software? Yes. Okay, first of all, sometimes. No, not sometimes. Always. In every business, my own included, you're going to find that you're out and about and you're using your personal checking account or your personal credit card for business expenses. And you may forget that you've done that. If you don't have a bookkeeping software, you may forget that you've done that. And when tax time comes, you lose the massive advantage of tax deductions that you might otherwise get because they happen somewhere outside of that bank account that we've put together. Okay? So that's one reason. The second is it's really helpful to look in an organized fashion at what you're spending on your business. So, yeah, you can download your bank statements and you can. Or the data from your bank statements and sort it and pivot table it and all that stuff. If you love Excel, you could even nowadays very easily toss that information into ChatGPT, quite frankly, and say, create me a profit and loss statement from this. I kid you not. If you. You can make it anonymous, you can black out things on a PDF, but you could literally print all of your bank statements for the year, black out all the information that you don't want shared with the world, upload them on Chat GPT, just add them as a part of your prompt and say, please create me a profit and loss statement from these bank statements and boom, you've got a bookkeeper right there in Chat GPT. Okay, I don't recommend that for massive amounts of transactions, but if you know you've got 20, 30 transactions a month in your business, you could get away with that. And you could try it after a month and see if you get the information that you want. Again, this isn't financial advice, because I will remind you that Chat GPT is not always 100% right. They have a disclaimer just like I have a disclaimer. This is not financial advice, blah, blah, blah, blah, blah. But give it a shot. So, no, you don't have to have a bookkeeping software. We'll talk next week on what is the best bookkeeping software to get. If I'm just starting out and kind of dive into that a little bit. But we'll keep it simple next week as well. For this week, we've covered three things. Do I need a business bank account? Do I need to set up a business? Do I need to get bookkeeping software? And easy answers are no, no, and no. My advice is yes, yes and yes. I hope you picked that up from this podcast. And I really look forward to continuing this series, signing off as the Keepers. Yeah, the Keep It Simple Squad. This is Pam and I'll see you next week.