If your small business is a sole proprietorship or a single-owner LLC, you may feel fine using your personal bank account to handle your business finances. But there are a lot of benefits to having a separate business bank account.
Opening a business bank account helps keep your business finances separate from your personal finances, makes your small business more ready for tax season, helps you with bookkeeping and accounting, and so much more. Regardless of what business structure you have, opening a business checking account, business savings account, and/or business credit card can all help your business in many ways.
7 Benefits of a Business Bank Account
1. Keeping Your Business Taxes Organized
When tax time comes and you have to file taxes with the IRS, having a business bank account can make all the difference. A business bank account makes it easy to track your income and business expenses, while keeping your personal expenses separate. You can handle deductions (like quarterly taxes) right from your business bank accounts throughout the year and easily find the information you need to create your tax returns.
Many business bank accounts also make it easy to add a professional, like an accountant or bookkeeper, through their own secure login. So they can easily access your business’s financial information without waiting for you to find the time to do it.
2. Getting a Better Handle on Bookkeeping and Accounting
By opening a business bank account, you can much more easily keep track of your daily transactions, especially with online banking. You can immediately see your business account balance on a daily basis, allowing you to track daily transactions (aka bookkeeping) and more easily calculate your cash flow. Easily automate your bookkeeping through online software by connecting it directly to your business accounts.
Keeping your business bank accounts separate from your personal accounts allows you a better view of your business finances, so you can budget and plan, too. Plus, by giving your dedicated business bank account details to your outside accountant or bookkeeper you can help keep your personal accounts more private.
3. Accepting Different Types of Payments
Most consumers today use credit cards to pay for things, and your customers are probably no exception. With a business checking account, you can accept not just credit card payments, but mobile payment options like Cash App and Square, ACH transfers, wire transfers, and more.
This makes it easier to accept payments for invoices, services, and physical products, particularly if you conduct most of your business online. You can set up a merchant services account and easily accept payments to your business checking account. With the right business bank account, you may be able to waive transaction fees, too, which we cover in more detail below.
4. Making It Easier to Apply for a Small Business Loan or Line of Credit
If you apply for a small business loan to cover daily expenses, buy new equipment, or fund an expansion, having a separate business account can help you get the documents you need quicker and can make your business more attractive to a lender. For instance, you’ll need your financial statements and income tax returns to apply. By having a separate business bank account, you’ll easily have access to these without having to sort through your personal transactions and accounts.
If you’d like to apply for a line of credit or business credit card, having a business bank account will also make this process much easier. Many banks offer a business credit card as you sign up, too, which can help you build business credit and make it easier to secure a small business loan.
5. Limiting Personal Liability
One reason for separating your personal banking from your business banking is liability. As a sole proprietor, you are fully responsible for any debts your business might incur, not to mention lawsuits from unhappy customers or vendors. As a sole proprietor, your business name is generally your name, and you also generally use your social security number for tax purposes, so you and your small business are one.
Even as an LLC or a sole proprietor with a doing business as (DBA) name and a federal employer identification number (EIN), you may still be liable for debts or lawsuits if you’re using a personal account for your business transactions. This is because it makes it more difficult for a judge or other investigator to determine that you are fully separate from your business. Thus, by keeping your business transactions separate from your private transactions, you can help limit your personal liability. You also limit the access that lawsuits or debt collectors may have to your personal assets. Opening a merchant services account also helps protect your customers’ purchases, so you’re less likely to run into trouble there, too.
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6. Allowing for Multiple Business Account Signers
If you’re a sole proprietor or single-owner LLC, this may not matter to you right now. But if your small business is a partnership, S corp, C corp, nonprofit, or any other number of business structures that may have multiple owners or responsible parties, you’ll want a business account that allows for multiple signers.
This makes it easier for different people in your business to do banking activities like signing checks for payroll, paying vendors, or moving money to checking or savings accounts. Of course, you still need your personal social security number to open a business account, so be sure you trust everyone you give access to the business account.
7. Taking Advantage of Business Account Perks
Opening a business banking account can have its perks. Many financial institutions offer sign-on bonuses if you spend a certain amount of money from your checking account or on your business credit card or debit card within a certain time period. They may also waive monthly fees if you maintain a minimum balance. There are even banks that will allow you to open a free business checking account with no minimum balance requirements, maintenance fees, or overdraft fees.
Many banks also offer you unlimited wire transfers, ACH transactions, or other merchant services transactions. You can also use a business credit card to help build your business’s credit, making it easier to secure a small business loan, as mentioned above. Beyond these obvious perks, business bank accounts also offer you greater access to lines of credit, professional services for your customers, purchasing power for your business, and protection, both for you personally and for your customers through merchant services.
When to Open a Business Bank Account
The right time to open a business account is as soon as you start receiving payments or spending money as a business. If you’ve already been using your personal accounts for business transactions, it’s okay – but you can benefit from opening a business account as soon as possible. Generally you should have your EIN when applying for a business bank account, although some banks will allow you to sign up using just your social security number.
You may imagine that, as a small business owner, you have to go to a physical location of a bank and open an account on the spot, preferably while wearing a suit and tie. Thanks to the normalization of online banking, this is definitely no longer the case. With the right documentation and personal information, you can open a business bank account online, possibly in a matter of minutes. You’ll want to choose the right bank for your business needs, gather the right documentation, and then apply, either online or in person.
Types of Business Bank Accounts
There are four types of business bank accounts that are most common, according to the Small Business Administration (SBA):
- Checking account
- Savings account
- Credit card account
- Merchant services account
Often you can open all of these business accounts at the same time, sometimes with sign-on bonuses or other perks (as listed above).
How to Find the Right Bank Account for Your Business
The type of small business you run, your financial needs, your revenue, and a number of other factors will play a part in where you decide to open your small business bank account. Many small business owners simply open a business account at the bank or credit union where they have a personal checking account, allowing them to establish a new business banking relationship with a financial institution they already trust.
But just because you have an existing relationship with a bank doesn’t mean they’re going to provide you with the kind of account or perks that your business needs. At the bare minimum, you’ll want to make sure any financial institution you choose is a Member FDIC or Member NCUA — or a member of the Federal Deposit Insurance Corporation or National Credit Union Administration, which are the two agencies that supply deposit insurance to American depository institutions. From there, you’ll want to check on what kinds of fees they charge or minimum balance requirements they have. Finally, you’ll want to decide if you need a physical location, or if mobile or online-only banking is something that will work for you.
Setting up a business bank account may seem like a hassle, but it can benefit your business today and in the future.
— Update: 08-02-2023 — cohaitungchi.com found an additional article 6 Benefits of a Business Bank Account from the website www.nerdwallet.com for the keyword benefits of business account.
If you’re a freelancer or a sole trader, you may be wondering whether to set up a business bank account. It may seem easier to just use a personal bank account for your business finances, especially when you consider that many business bank accounts will charge certain fees for using them.
However, there are a number of advantages to having a separate account for your business finances.
They’re designed for business use
This may sound like an obvious point, but business bank accounts are specifically designed to be used by businesses.
While sole traders could theoretically use a personal current account for their business finances, this will depend on the terms of the account. Some providers won’t allow you to use your personal account for business use, so if you planned to do this you would need to check the terms and conditions first.
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With a business account, you know for sure that you can use it for business. However, bear in mind that some providers may set restrictions on the type and size of business that can open an account with them, so it’s still a good idea to check the terms first.
» MORE: Do I need a business bank account?
It’s easier to organise your finances
Having a separate account for your business can help you to manage your cash flow and fill out your tax return.
Initially, it may seem easier to use your personal account rather than going through the process of opening up a new business account, but this is likely to cause more problems for you in the long term.
If you use a personal account, important business transactions could be sandwiched between your latest supermarket shop and the present you bought for your friend’s birthday. This can make it difficult to figure out exactly how much money your business is spending and receiving, and will also make it more time-consuming to fill out your self-assessment tax return as you need to sift through all your personal transactions.
By having a separate business account, you can easily view your balance, track the income and expenditure of your business and see what payments, if any, you have outstanding.
It also prevents you from using your business finances for personal use and vice versa, allowing you to get a true picture of your business accounts and budget accordingly.
Furthermore, if HM Revenue & Customs (HMRC) needs to look at your business finances for any reason, it can just look at your business account rather than trawling through your personal transactions.
» COMPARE: Sole trader bank accounts
Many come with useful features
Personal accounts are designed for personal use, so they won’t typically come with any special features that could be useful for your business.
Business bank accounts, on the other hand, will often come with a range of features that can help your business. The benefits on offer will vary between providers, but they can include:
- integrated invoice tools
- ability to upload receipts
- categorisation of your spending
- integration with accounting software
- account upgrades, for when your business grows, for example
Bear in mind that many business accounts will come with fees, such as a monthly charge or charges for certain types of transactions. However, some will offer free business banking, either permanently or for a limited period.
Details will vary between providers, so check their fee structure before opening an account.
» MORE: Business bank account charges explained
It looks professional
Image is important in business, and having a separate business bank account can help to create a more professional image when dealing with suppliers and clients.
It could help to build up your credibility and make you appear more trustworthy to clients, who may feel reluctant to send payments to a personal account.
» MORE: How to open a business bank account
You can build up your business credit rating
Having your own business bank account could help you to start building up your business credit rating.
Credit rating is important if you want to take out a loan, credit card, or other form of finance for your business. Even if you’re not planning on applying for finance at the moment, setting up a business account now can help you begin to build up a credit history for your business.
Make sure you manage your account efficiently and don’t go overdrawn, otherwise your credit score could suffer.
Bear in mind that, if you’re a sole trader, any applications for credit will be based on your personal credit score as you and your business are viewed as one and the same. If you recently set up as a limited company, lenders may still look at your personal credit history as you’re unlikely to have built up much of a business credit history.
» MORE: How to improve your business credit score
You’re prepared if you want to scale up
If your business is still relatively small, you may not feel like you need a business bank account right now.
However, over time, your business is likely to grow and handle more transactions, which could be hard to manage through a personal account.
Setting up a separate account for your business sooner rather than later can lay the foundations for future growth. It can make it easier to scale up your business, as you won’t need to worry about switching to a more suitable bank account while your business is experiencing other major changes.
Many business banking providers allow you to upgrade your account to access more features, such as invoicing tools, for example. This means that, as your business grows, your account may be able to grow with it.
» COMPARE: Business bank accounts
Image source: Getty Images
— Update: 10-02-2023 — cohaitungchi.com found an additional article Five Benefits of Opening a Business Checking Account from the website www.biz2credit.com for the keyword benefits of business account.
Updated October 26, 2020
When you’re running a business, you have the option of using a personal checking account for your transactions or opening a business checking account. What’s the difference between the two? Why should you use a business checking account, anyway?
Whether you’re opening your first business or your fifth, having a business checking account is more important than you might think. Here are five important benefits of opening a business checking account.
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1. Separating Business and Personal Finances
Perhaps the most important reason to use a business checking account for your business transactions is to separate your business and personal finances. Why? Because when it comes to tracking income, expenses and paying taxes, it’s just easier if things are separated.
Separating your personal finances from those of your company will help you avoid tax problems with the IRS. It is critical to have company expenses distinguished from personal items — especially if your company is ever audited someday. A business bank account helps prove that your business is a real entity and not a hobby.
Your business will likely have its own taxes to pay, and you’ll have to pay personal income tax. If you’re using one checking account for both business and personal finance, you’re going to have a confusing, jumbled mess. You should be tracking your business income and also how much you’re paying yourself from the business. All of this will come into play when you file taxes.
Not to mention, if there’s a problem with your business checking account, it could potentially derail your entire financial network. What if your account becomes inaccessible or is jeopardized by a security breach? You’d be unable to access any of your money for who knows how long. The bottom line? Separating business and personal finance isn’t just a matter of organization—it’s also a matter of personal and business security.
2. The Need To Acquire Financing
At some point during your business ventures, you may want to acquire financing to expand your business or make purchases to improve operations. In this case, it’s best to have a business checking account for two reasons: to separate personal and business credit scores, and to prove the seriousness of a business. Banks will look at more than just the business’s income. Lenders want to see that a business has its own accounts, stable income, and a good credit score. If you’re mingling business and personal funds, you’re putting your business at the mercy of your personal credit score.
If you have financial problems like collections or just a poor credit score, you might be putting your business’s financial future at risk. Not to mention, certain resources, like small business loans, may only be accessible to businesses with their own checking accounts. Don’t risk your business’s ability to get the funding it needs by mixing personal and business finances.
A big part of owning a business is playing the part. If you want to call yourself a business owner, you’ll want to look and act the part. Imagine sending a personal check to a customer or client. That doesn’t look very professional, does it? You can say you’re a business owner all day long, but in order to reinforce the claim, you need to have certain things to back it up. A business checking account is a good place to start.
You can order checks with the business’s name (and logo) on them. You’ll be able to prove to anyone who inquires that you do, in fact, own a business. Clients and potential customers will feel more comfortable doing business with someone who feels more legitimate. A personal check just doesn’t look professional.
4. Accepting Credit Cards
With a business bank account, you’ll be able to accept credit card payments for your business. This is crucial to the success of your business, as credit cards are a leading method of payment in the US. If you can’t accept card payments, you may be cutting your business short. Using a business checking account allows you to accept payments via your bank; or, you can set up a merchant account and accept payments that way.
This is also important if you have an eCommerce store. Even if you use a service like Square to process payments, you’ll need an account to send them to. You don’t want to send them to your personal account! Using a business account helps you track each and every payment and refund without the confusion of your shopping trip to Target intermingled with it.
5. Business Partners
When you start a business, sometimes you’re not alone. If you have business partners, they’ll want to be able to access and use business funds, too. That can hardly be accomplished if your business finances are tied to your personal accounts! Would you want even a good friend to have access to your personal checking account? Probably not.
You can also give certain administrative bank duties to future employees, which is something you definitely wouldn’t want to trust to someone if you’re using a personal account.
That’s not to say that you can’t trust the people you’re opening a business with, but it’s always a good idea to take certain precautions. Things can go wrong in business, and the last thing you want is for your personal finances to be at risk should something go awry. The best practice? Separate business and personal finance and only give business partners or employees access to the business account(s).
The Bottom Line
There’s nothing more important than protecting both business and personal finances when you’re a business owner. Keeping things separate for tax purposes, payroll, and more will protect your business interests and keep your personal accounts out of the mix. There’s more risk involved with personal accounts, so open a business account today and take your business to the next level of professionalism.