Opening a business bank account may not seem necessary when you first start your business, but having a separate account from the beginning comes with many benefits.
Once you reach a certain size or incorporate your business, you’ll need a business bank account anyway. It’s easier to start a separate account when you establish your business to keep everything separate from the beginning.
Starting a business bank account is a simple process, but you’ll want to compare the account fees to find the best option for your situation. You might have fees for not meeting a minimum balance, transactions, cash deposits, ATM use, and monthly service fees.
If you’re on the fence about starting a business banking account, check out these five benefits.
1. Separation of Personal and Business Finances
Once you deposit business funds into your personal bank account, there’s no way to separate those finances. You can keep records showing which deposits belong to your business, but the money goes into one pool.
This can blur the lines when you’re spending money. Is the money you’re using to buy groceries your personal money or the business funds? There’s no separation.
It makes your bookkeeping more complicated because your personal and business transactions go on the same statement. The transactions are mixed together, so you have to go through line by line to sort them.
This not only creates more work, but it also makes it difficult to get a quick snapshot of how your business is doing. You can’t just glance at the balance or the transactions. It takes more work to figure out which transactions have processed and which ones are still pending.
If you use an accountant to handle your business finances, having a separate bank account makes your accountant’s work easier. The saved time working on your account can save you money if your accountant charges by the hour.
The mingling of finances also makes your taxes more difficult to do. You may miss some of your business income or expenses when you put everything into one account. A mistake on your taxes can result in penalties.
If you ever get audited, you’ll have clear separate documentation. Having multiple bank accounts can make the audit go more smoothly.
2. Personal Liability Protection
Running a business comes with financial risks. If your business performs poorly or gets sued, you want as much personal protection as possible.
Separating your business finances can give you some protection. When you combine personal and business finances, your personal assets are at risk if someone comes after your business.
Your business account has the business name and address on it instead of your personal information. This helps protect your identity.
It can also reduce fraudulent activity on your personal account. Each time you write a check for a business transaction from your personal account, you put your personal information out there. If it falls into the wrong hands, you could have your identity stolen or your bank account compromised.
A business account can also be compromised, but you won’t have to worry about your personal bank account being affected.
If you decide to run your business as a corporation, incorporated sole proprietorship, or partnership, you’ll need a business bank account anyway. Those types of business structures provide greater personal liability protection than a sole proprietorship.
3. Professional Appearance
Your customers won’t know what type of bank account you have unless you ask them to write the check to you personally. But the bank, vendors, and other people you pay will know.
When you pay your vendors for goods, are you writing a personal check? That can make your company look more like a hobby than a legitimate business.
Having a separate business bank account gives your company a more professional appearance. It looks like you’re taking your company seriously from the beginning.
It can also make people feel like you’re more of a legitimate business. Vendors want to know you’re going to be able to pay them regularly. Banks want to know you’re serious about your business before they lend you money for your company.
4. Business Credit Score
Even if you’re not seeking funding for your business now, you may in the near future. To get that funding, you’ll need to convince a bank or investors that you’re a legitimate business and have the means to pay the money back.
When you set up a business account, you establish your company’s financial history. If you manage your money well, it shows a history of timely payments without overdrafts or other financial difficulties. This builds confidence with potential lenders.
A separate account can also make it easier to get a business credit card account. Having those relationships with the bank as a business owner with a business account helps.
All of the financial transactions that happen under your business name go into your business credit score. It’s similar to a personal credit score with several factors going into the calculation.
Credit bureaus may use information from your business bank accounts, vendors, business credit cards, and other sources. Your business credit score goes into lending decisions.
By separating your finances early, you slowly build a strong business credit score. When you decide to look for financing, you have that established history as proof of your creditworthiness.
5. Easier Payment Acceptance
Offering your customers as many payment options as possible helps keep them happy and may even encourage people to do business with you.
Processing those various payment types is much easier with a business account.
If you accept personal checks, your customers will likely write them out to your business. To deposit the checks, the name needs to match the account. A separate account listed under your business name lets you easily deposit those checks without issue.
If you plan to accept credit card payments, you’ll need a merchant account. That’s a special bank account that lets you receive credit card payments. It lets you have access to the credit card payment amount less the fees, so you don’t have to wait for the normal processing period.
Opening a Business Bank Account
The benefits of opening a business bank account are worth it to protect your personal assets and simplify your business accounting. Explore our business section for more useful information to help your company grow.1