Starting a business is a process with myriad potential pitfalls. You could invest in a niche business concept with an underserved customer base, only to have a competitor open their doors before you, effectively gaining the market share that you expected. You could also violate state or federal regulations for your industry or fall victim to fraud.
However, one of the most common mistakes people make doesn’t involve the operation of their business but rather their management of finances early on after they start the company.
Your business needs a separate bank account from day one
You need to have a clear separation between your personal and your business’s finances, or you risk allegations of commingling. Commingling is the legal term for combining separate finances in a way that makes them very difficult to distinguish.
In a business situation, commingling might involve using your personal account for business purposes or vice versa. When you first start a company, you will need to cover costs, ranging from your business formation filing with the state to insurance coverage. You should not pay for these using your personal bank account or credit cards.
You will be at a significantly higher risk of losing the benefits of a formal business structure if you commingle your personal assets with business resources during the start-up stage. If the business fails and creditors or former employees bring a lawsuit against you, your commingled assets might make your personal property vulnerable to those claims.
Getting help and guidance with the business formation process can help you avoid pitfalls that could affect the success of your business and your financial future.