Financial guide to starting a small business - start smart series part 3 : Business Banking
One of the easiest ways to complicate your taxes and even risk your legal protections is by mixing business and personal money.
It happens more often than you’d think: a few personal charges on the business card, depositing client checks into a personal account, or paying yourself straight from Zelle.
At first it feels harmless. Later, it becomes a bookkeeping nightmare — and potentially a liability issue.
Let’s walk through why separation matters, how to do it right, and what simple steps set your business up for success.
1. Why Financial Separation Is Non-Negotiable
Tax clarity:
The IRS expects your business activity to be clearly documented and distinct. Commingled funds make it hard to prove deductible expenses or calculate accurate income leading to lost deductions or audit exposure.
Legal protection:
For LLCs and corporations, separation isn’t optional. If you blur the line between personal and business funds, a court can “pierce the corporate veil,” meaning your personal assets could be at risk.
Professional credibility:
Vendors, lenders, and clients take your business more seriously when payments and deposits come from a business account under your company name.
2. Open a Dedicated Business Bank Account
Where to start:
Choose a reputable bank or credit union with small-business expertise.
Compare fees, integration with accounting software, and online access.
Use your EIN, formation documents, and operating agreement when opening the account.
Colorado note: Many local institutions such as Ent Credit Union, Canvas Credit Union, and Alpine Bank have small-business divisions that integrate directly with QuickBooks or similar software.
Pro tip: Deposit startup capital (cash or property proceeds) directly into the account so every dollar is traceable from the beginning. This will become important later when we talk about “basis”.
3. Keep Personal and Business Spending Separate
Once your account is open:
Use it only for business transactions — no groceries, gas, or personal bills.
Pay yourself from the business (as a draw or payroll) instead of paying personal expenses directly.
If you must reimburse yourself for out-of-pocket business costs, document the expense and record the reimbursement. Ask us about "accountable plans”.
4. Establish a System for Recordkeeping
Automation helps enforce good habits:
Link your bank feed to accounting software (QuickBooks Online, Wave, or Xero). We prefer QBO - and can save you 30% a month through a referral program.
Reconcile monthly so every transaction is categorized correctly.
Use a separate business credit card for expenses like supplies or subscriptions.
Save receipts digitally. Most accounting software allows you to upload directly via their mobile apps.
Colorado focus: Maintain digital records for sales and use-tax reporting through the state’s Sales and Use Tax System (SUTS) — your clean banking data will make filings seamless.
5. Avoid These Common Banking Mistakes
Using one account for multiple side hustles — open a separate account per business.
Depositing personal checks into the business account.
Paying employees or contractors from a personal account.
Forgetting to separate taxes — always transfer a portion of each deposit into a tax savings account. Set aside those funds as soon as you receive them or you run the risk of accidentally spending them. This can create a huge problem when those payments are due and costly fines if you don’t have the funds available.
6. Build a Cash-Management Routine
Think of your bank accounts as buckets:
Operating Account – for day-to-day expenses.
Tax Savings Account – set aside 25–30% of income for estimated taxes.
Owner’s Pay Account – your personal draw or payroll.
Reserve Account – for future investments or slower months.
This simple system keeps cash organized, prevents accidental overspending, and ensures tax money is always ready when due.
7. The Long-Term Payoff
When you separate finances early:
Tax prep becomes faster and less expensive.
You can see profitability clearly and make smarter decisions.
Your liability protection stays intact.
Lenders trust your books when you need financing.
These small, disciplined steps can make the difference between smooth growth and year-end chaos.
Business Banking Setup Checklist
Before your first deposit:
Obtain your EIN and entity paperwork.
Open a dedicated business checking account.
Use the account exclusively for business income and expenses.
Connect the account to your bookkeeping system.
Set up secondary accounts for taxes and reserves.
Document any owner contributions or reimbursements properly.
Next in the Series
Part 4 – Accounting Systems and Recordkeeping: Building the Backbone of Your Business
We’ll dive deeper into setting up accounting software, chart of accounts, and habits that keep your books audit-ready.
Final Thoughts
Strong finances start with clear boundaries.
At Hiatt Accounting Group, we help entrepreneurs in Colorado and across the U.S. establish clean, compliant systems for banking, bookkeeping, and tax management.
Many business owners are experts in their trade — not in accounting — and simple early mistakes with money flow can cause major headaches later. We’ll help you open the right accounts, create efficient cash-management processes, and build the confidence that comes from knowing your financial foundation is solid.
Schedule your Startup Planning Consultation today, and let’s make sure your business banking works for you - not against you.
Call or text us: (720) 595-9473
Email: ahiatt@hiattaccountinggroup.com
Visit: www.hiattaccountinggroup.com
