One in five business owners fails at separating business and personal bank accounts. Small business owners are more likely to put off setting up a business bank account. This is a mistake that can lead to many reporting and tax issues but can be corrected with a bit of sorting. Here are five reasons to separate business from personal finances.

Filing Business and Personal Taxes

Tax filings are stressful for individuals and entrepreneurs alike but if you are not an organized business owner, tax time can become a nightmare. If you have a bookkeeper or another accounting professional working for you, they most likely prefer you to keep separate accounts to help classify purchases and deposits for your firm. If you were to try to classify all the expenditures in your account at the end of tax season, you can easily misclassify expenses and miss out on many tax deductions. Plus, it places you at a greater risk of being audited, which means you would have to dig up receipts for all of your transactions.

Separating Business & Personal Liability

If you have a corporate structure in place, then you definitely want to protect your assets. No one wants lawsuits or business debts to put personal finances in jeopardy. When you mix your regular and company accounts, you are doing just that. A creditor could potentially have a claim against your firm and get both your company and personal funds, placing you in an very unfortunate position. If you have a corporation or LLC you have to set up different bank accounts, otherwise a claimant can hold you personally responsible.

Applying for Business Loans

Some small business financing options require you to provide information on your business cash flow from bank statements or accounting data. If you cannot explain your revenues and expenses, you will most likely not be approved for the loan. One of the many financing options is a merchant cash advance. Lenders analyze your FICO SBSS score. A good thing about a separate business account; if your business shows profit, your financial institution (Bank, Credit Union, etc) could give you a financing offer unsolicited.

Monitoring Planning for Growth

In an ideal situation you would have a good system in place monitoring your firm’s long-term and short-term financial position. There are indicators that can be taken with a glance at your accounts. To be able to determine the health of your company, it’s important that only business transactions appear on the bank and credit card statements.

Protecting Personal Finances

Your personal budget will become smoother when you can easily tell the value of personal funds available rather than including money from business operations in the bank balance. And if you are planning to get a mortgage or refinance, it will most likely be easier due to the ability to document expenses for the business and your personal deductions due to separate statements .

If you have not yet opened a separate bank account for your business, we highly suggest that you do so, especially if you are an entity. This will make it easier to do your bookkeeping and provide documentation if required. If you are wanting to avoid bank fees, look into regional banks or credit unions which often have no monthly service fees with a checking account. And even if you must pay a small fee, it’s better to have a business account with a small monthly cost than to have to take the time to split transactions on the statements into business and personal categories.

This post originally appeared on AllBusiness.com.

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