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Question about new business

Discussion in 'General Discussion | Finance' started by spamman808, Sep 13, 2017.

  1. spamman808

    spamman808 Level 2 Member

    hi all,

    I'm a teacher, and just started a bit of a side gig offering professional development classes online to help other teachers move up in pay (in my state pay raises are tied to continuing education). I set up a PayPal business account so that they can pay me online, but I'm wondering if I should open a separate business checking/ savings account or just deposit the money from my PayPal business account into my personal checking.

    Background info that might be helpful for you to understand my situation:
    I don't foresee many expenses for this class, since I'm using a free google site. At most I'd purchase a new computer. I do foresee making maybe an extra 10-15 thousand dollars through this business a year.

    Is it necessary to open a business account? Is it advantageous to do so?

    Sorry for a newb question, I appreciate all advice.

    Thanks friends
  2. Matt

    Matt Administrator Staff Member

    Paypal accounts are actually quite convoluted for accounting, and recording transactions between PP Business, Business Checking and Personal Checking is sometimes difficult.

    The reason is that the PP Business account is essentially a checking account itself, so you get doubled up transactions and Quickbooks etc gets all confused as to what was earned and what was just a transfer from one to another.

    That's a money/tax/flow thing though. So from that perspective, providing you keep all your Paypal transactions in that account for the business, it can be a decent way to track income and expenses using their own internal reporting.

    What I would avoid doing is multiple transfers back and forth. This is no difference between Biz checking to Personal checking, or PP to biz, or PP to personal. Keep transactions to a minimum.

    EG, if you know that you have $100 of expenses coming up in October and again in November, and you know that your income is only going to be $60 for each month, and you have $140 in the account. It would be best to leave at least $80, if not all of it there, so you don't have to replenish the account with personal funds to pay expenses.

    This comes into the broader point - if you are to pay for things, is PP going to work everywhere? If so, then it is fine, but if you need a credit card, can you pay that off using PP? If not, get a business checking.

    Also, some people like to get EIN and business checking to help build a case for business credit card applications. If you go down that path, you have to be careful not to start running up non business expenses on the cards to meet min spend unless you keep solid records and can carve those out.

    Lastly, there's always an argument for going fully 'legit' which is LLC, Biz Checking, Biz Credit card and eventually a tax election like S Corp. I wouldn't stress that just yet, but if you are talking $15K then you could be looking at retirement accounts to lower your taxes (even without the LLC)

    Personally though, I use Biz checking accounts.
  3. +1 to good record-keeping. I have a slightly different perspective than Matt since I think all the formalities of "business" accounts are basically marketing. I approach everything as "what would I be asked to prove if questioned about this?" So you want invoices that match your receipts, timely records tracking your income and expenses, that kind of thing.

    It gets more complicated if you incorporate since then you'll want to segregate the business's assets from your own. But it's perfectly reasonable to run a sole proprietorship out of your personal checking account.

    A different question is whether to get an EIN and start building proof of your business you can use to apply for bank account bonuses and credit cards and stuff, which you definitely should do.
  4. Matt

    Matt Administrator Staff Member

    Mostly the same tbh. I have a unique business account for each business because each business requires its own tax return. Even if that was a simple as a Sch C. Having a separate business account that pays of a separate business credit card each month makes recordkeeping easy (even easier if you cut out the credit card and go debit, but I'm still too cheap)
  5. spamman808

    spamman808 Level 2 Member

    Thanks guys. For now I think I'm going to play it slow and just opening a business checking (no credit card...yet). Honestly, the program I'm set up in makes it pretty cost effective (free) to post classes, so there wouldn't be much mixing of business and personal money, if at all. I guess that means that if I open a credit card it wouldn't be too hard to keep track of spend for business vs. personal.

    Thanks for the insights.
  6. JuanG

    JuanG New Member

    I prefer Paypal is better for me

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