Do I need a business bank account? Should you open a separate bank account for your business?
It’s a common question business owners ask when starting their business. You may already have a personal bank account, but do you need a business bank account? While it seems like a hassle, there are several perks to having a business bank account.
Read on to find out more.
Benefits of Having A Business Bank Account
Instead of using your personal account for business, open a business account. Here are some of the significant reasons why you should:
Keep Personal & Business Finances Separate
A recent study by MasterCard found that many small business owners don’t separate their personal and business expenses. It’s important to keep these two things separate. Not because it’s the law but also because it makes managing your business finances much easier.
Easy and Organized Bookkeeping & Accounting
A separate business bank account can help you see how much money is coming in and out of your business. It helps show important trends. You can also make reports and statements that show how your business is doing over time.
Establish Business Credit
When you open a bank account for your business, credit bureaus keep track of your business’s credit history. It can be beneficial in the future if you need to borrow more money or get an extra line of credit for your business.
Professionalism and Credibility
Having a separate account for your business can add an element of trustworthiness. It shows that you’re serious about your business. This can be particularly important if you want to build relationships with vendors, suppliers, and customers.
Come tax time, you’ll have a clear record of all your business income and expenses, making it easier to deduct them from your taxes.
Extra Layer of Liability Protection
If your business gets involved in a lawsuit or legal problem, having a separate bank account can help protect your assets from being taken to pay for any judgments against your business.
Who Needs Business Bank Account?
- Limited Company (Limited Liability Company). The law requires LLCs to have separate business bank accounts. A separate bank account helps LLCs maintain legal separation from the owners.
- Incorporated Business. Like limited companies, the law requires corporations to have separate business bank accounts.
- Partnerships. Opening a separate business bank account is often required for partnerships. One can help track each partner’s contributions, expenses, and profits.
- Sole Proprietorship. If you’re a sole proprietor, you and your business are legally considered the same. The law does not require a separate business account, but it’s still a good idea.
- How many bank accounts should my Business have?
At a minimum, a small business should have one business bank account and one personal account. Depending on the complexity of the business’s finances, you may need additional bank accounts.
- Can I use my personal bank Account for business expenses?
Technically, yes. You can use your bank account for business purposes, but it is not recommended. Combining personal and business transactions is challenging, risky, and unprofessional.
- Can I pay personal bills from a business account?
No, you should not pay personal bills from a business account. Mixing personal and business expenses can lead to accounting, tax, and legal problems.
- What are the downsides to having a business bank account?
Business bank accounts may require a minimum deposit. Also, some business bank accounts may have a monthly maintenance fee.
Each transaction may incur fees, such as withdrawing or writing a check. These fees can add up over time, so be aware of them and plan accordingly.
- What are the best business bank accounts?
Fees, features, and customer service are paramount when selecting a business bank account. Examples are Bank of America’s Business Account (Fundamentals Checking and Business Advantage).
Bluevine business checking is another popular online banking alternative with no monthly fees, unlimited transactions, and 2% interest. It’s worth comparing accounts to discover the best one for your business.
The Bottom Line
So, should you open a separate bank account for your business? Definitely, yes.
Choosing the best business bank account depends on your needs, location, and preferences. Consider the fees, features, accessibility, and customer service to select the right one. Once you get all of this done, your business’s financial transaction is sure to go smoothly.