If you’re wondering if you need a business bank account and don’t know where to start, consider the benefits first. Business bank accounts help separate your business finances from your personal finances and help protect your company assets. These accounts also serve to simplify your taxes and allow you to build a banking relationship that can help you secure future business funding.
Do I Need a Business Bank Account?
Separating business and personal finances is a sound practice, and a business bank account is one of the best ways to do it. Mainly, if you need clear accounting or business legitimacy, a business bank account is a good idea. However, you should also set up a business bank account if you:
- Run a freelance business: Business accounts can help you manage your freelance business more effectively by giving you a safe place to keep your business earnings.
- Have more than one business: Separate business bank accounts can help you manage the money flow from each company, making accounting easier.
- Have a business partner: Since it’s important to have a business bank account that allows all business partners access to the banking activity, a business account for your partnership can keep transparency and ease of operations between partners.
- Own real estate investment properties: You can open a bank account for each investment property, helping you keep track of incoming funds without personal liability exposure.
- Have employees: Business bank accounts offer great banking products like business checks and payroll services to help you pay employees with ease.
- Use multiple vendors: Business accounts are great for managing vendor payments. You can even set up outgoing direct deposits and automatic payments to ensure you never pay late.
- Need proof of business finances: Business financial statements are often required for certain business products like loans. If you’re looking for funding, you’ll need bank statements to certify your business account activity.
If you’re concerned that you’ll have to pay fees for a business checking account, check out LendingClub Bank. It offers a fee-free business checking account and pays an annual percentage yield (APY) on all balances. This means you’ll earn interest as soon as you deposit money into your account.
Can I Use a Personal Bank Account for Business?
Although it’s common for sole proprietors, freelancers, and independent contractors to use their personal accounts for business, it can be counterproductive. Mixing your personal and business expenses under one account will make it hard to spot business transactions. It can also cause accounting complications that can lead to an IRS audit come tax season. Having a separate business account will help you avoid some of these issues.
Requirements to Open a Business Bank Account
To open a business bank account, you need to decide what type of business bank account you need—a business checking or business savings account—and whether you’d like to bank with a traditional bank, online-only bank, or a community credit union. Whatever you choose, you’ll need to research banking costs like maintenance fees, transaction fees, and interest rates. Finally, based on the type of business, be prepared to bring in specific business documents like your business license, identification, and articles of incorporation.
Benefits of a Business Bank Account
A business bank account has many benefits, such as separating your business and personal finances, simplifying your taxes, and getting access to helpful business services. Furthermore, building a business banking relationship can also help you better prepare for business growth.
1. Separate Your Business and Personal Finances
The major benefit of having a business bank account is the separation between your personal and business finances. This keeps your accounting simple and allows you to get in on special deals for businesses like lower interest rates, special business credit cards, and account discounts.
A business bank account also signals to your bank that you’re a business owner with unique business needs. For example, banks usually accommodate merchant customers with their own business customer service number as well as a separate line for branch visits. This is a nice consideration that only business bank account owners get to experience.
2. Simplifies Tax Season
You will find it easier to do your taxes when your business finances are sorted into your business account. If your expenses are scattered throughout personal bank accounts, it could expose your business to unexpected liabilities with the IRS. The IRS could flag your business for an audit and make you pay penalties and fees as a result. It’s much safer to keep your business finances in your business account to avoid these issues.
3. Helps Prepare Future Business Growth
Keeping a bank account under your business name can go a long way in providing trust and credibility to partners and interested parties. Plus, having a business bank account can also provide your business’s financial activity and history, which you’ll find useful when applying for a business loan. There’s no doubt the goal for your business is to grow and flourish, but you’ll need a business bank account to help accommodate that growth.
4. Provides Liability Protection
Since a business is a separate entity, separating your personal and business finances by opening a business bank account can help protect your personal assets. In most cases, banks and collectors can’t debit your business account for personal debts or other liabilities. This means those seeking to collect on your personal debt cannot go after your business funds. However, sole proprietors don’t have these same bank protections, so you’ll need to register your business as a limited liability company (LLC), partnership, or corporation to protect it against personal liabilities.
5. Lets You Build a Banking Relationship
A banking relationship is important for business owners, especially if you’re looking for business funding. Lenders need proof of business financing and bank statements for business loans. Having a relationship with your bank provides you with the much-needed financial history and supporting bank statements for a bank loan approval.
6. Allows You to Accept Credit Card Payments
Finally, a business account is a great option for owners that accept credit card payments. Many consumers rely on a credit or debit card as a payment source, so if your business involves retail, receiving credit card payments will be a necessity. Typically, bank accounts for businesses offer merchant services so that you can offer your customers as many payment options as possible to keep them happy.
Drawbacks of Not Opening a Business Bank Account
Not having a separate bank account for your business can have a negative impact on your business prospects as well as your credit. You won’t have the means to separate your business finances from your personal finances properly, which can lead to a whole host of issues later on. It’ll also be difficult to build business credit or apply for business loans without a business bank account because interested parties in your business, such as lenders, potential partners, and investors, will use bank statements to help evaluate your creditworthiness.
A business bank account will keep your personal and business finances separate, making it easier to establish your business. It also lends credibility to your business and makes you look better in the eyes of creditors. It’s best to open a business bank account as soon as you begin your business so that you are off to a good start.