Car repair

Financial Fable: Mike the Mechanic Part I – Why Every Small Business Needs Its Own Bank Account

“I’m just a mechanic.  Why would I need a separate bank account for my shop?” Mike asked Katie as they walked to a table at the local coffee shop.  He had been repairing cars out of his garage for the last 8 months and didn’t really consider himself a business-owner.  Katie, a CPA with her own accounting & bookkeeping business specializing in small businesses and who is a Certified Quickbooks Online ProAdvisor, was recommended to Mike by his tax preparer, Anne.  Mike had shown up in Anne’s office with a shoebox full of receipts and Anne knew she didn’t have the time to sort through the box.  She had several other clients that worked with Katie before bringing in their taxes.  Anne knew Katie would help Mike turn this box of receipts into a set of financial statements she could quickly and easily enter into her tax software, saving her several hours and Mike a few hundred dollars.  “I bring all the money home anyway,” Mike continued. “What difference does it make if I deposit my checks into my personal account, or a separate business account?”

Katie took a sip of her coffee and smiled.  “Great question, Mike.  Many new small business owners think the same thing.  Let me ask you something first.  Do you need some new tools or equipment?”

“Always! In fact, just last week my lift started acting up.  I don’t think its gonna last much longer.”

“Oh no,” replied Katie, concerned for her new client. “Do you have enough money to fix it or replace it?”

Mike looked at the table, worry on his face.  “Probably not.”

Katie empathized for Mike.  She’d seen this stress before in her clients’ faces.  “We’ll come back to solving that problem later.  As unfortunate as this impending major expense is, it helps demonstrate my point.  If you always ‘bring it all home’ as you said, there is never any savings built up in the business to cover repairs and other emergencies.  Equipment is going to break. Tools need replaced.  Taxes need to be paid.  You may even want to grow out of your home garage and get a larger shop someday.  You need to be setting money aside within the business to plan for these expenses.”  Katie sifted through the box of receipts Mike had brought with him. “Mike, about how much money do you bring home each month?”

He thought for a moment and said “In the beginning it was about $1500-$2000 per month, but the last couple months I’ve been getting closer to $3000.”

“Wonderful, Mike!  I’m thrilled that business is growing for you.  And what do you think you spend on parts every month?”

“Well…I’m not real sure.  I mean, I just use my debit card to pay for it and I make sure that I charge the customer enough to cover the parts and my labor”

“What about oil, grease, filters, rags, cleaning products….” Katie stopped.  She could tell by the look on Mike’s face that he had no idea.  “Mike, your business is ready not only for a business checking account, but for some accounting software too.  By having a separate bank account, we can connect the software directly to your checking account and download the bank activity which will automate a lot of the bookkeeping process and save you time.  You’ll easily be able to see how much you spend on all your expenses, which will help you build those overhead costs into your pricing, resulting in more profit for you.  You’ll save Anne several hours of sorting through receipts, which could cost you several hundred dollars for her time.  And it will be easier to start setting money aside to cover those big expenses that come up from time to time.” 

“Save me time AND money? You’re speaking my language,” Mike laughed.

Katie stood, grabbing the coffee cups, “I’ll get us a couple refills and we’ll talk about your software options”.


So many new business owners find themselves accidentally starting a business.  To make a little extra money they start repairing a few cars, mowing a couple lawns, or making crafts to sell on Facebook and suddenly they have more appointments and orders than they expected.  The first step to keeping accurate records in any business is to open a separate checking account.  Many banks offer free business checking accounts, and they can be opened as a dba, or doing business as, account under the owner’s social security number (in Mike’s situation the account holder would be Mike Smith, dba Mike’s Auto Repair).  Having a separate account will not only help Mike monitor the progress of his business, it will be a great resource for his tax preparer to make sure he gets every deduction he’s entitled to.

 If you are a new business owner contact me to find out how you can reduce the amount of time you spend on bookkeeping!

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