December 20, 2019 | Last Updated on: June 16, 2023
When first starting out, small business owners will often use their personal bank accounts as a place to do business banking. This can be fine for smaller ventures, but as your business grows your accounting will too. A business bank account is a business essential. Business finances can get hairy when you’re constantly trying to sort out which deposits and credits are associated with your personal finances and which are business-related. Having a separate account can be a huge help when it comes to business accounting, working out revenues and business expenses, getting small business loans, dealing with the IRS during tax time, and staying sane when managing your personal funds. Almost every bank out there offers FDIC insured business checking and savings accounts with competitive minimum balances, good interest rates, and advantageous overdraft policies. It’s easier than ever to find a great bank to work with and set up the accounts that you need. We’ve outlined the key benefits of having a business bank account and why it can be better than relying on personal accounts for managing your business finances.
When you first open your business, especially if you start small, you might be able to get away with co-mingling personal and business finances in a personal bank account. A sole proprietorship doesn’t have requirements for business accounts, but for more complex business structures it’s often legally required. For example, small business owners looking to set up a limited liability company (LLCs) are required to have a separate business account because your business is considered a separate legal entity for tax and other purposes. Purposefully or accidentally not complying with these rules is not a great idea if you want to keep your doors open. If you are looking to set up a more complex business entity as your business grows, make sure that you are complying with any rules regarding the use of personal bank accounts vs. business accounts. Setting up a business bank account might just be a part of doing business as you become more successful.
As your business grows, so do the number and complexity of your business transactions. Keeping track of your business finances will start to get very difficult as you deal with large cash flows going through your personal accounts. Having a separate business account will keep your business and personal assets and finances in separate locations, which makes it easier to manage both. Business bank accounts also allow you to add other authorized users, like an accountant or other employees, to help keep track of things. As your business grows, so do your business needs. One of those needs will eventually be opening a business bank account to keep your accounting records organized.
Housing all business-related transactions in an account with your business name will also make keeping track of tax-related transactions much easier. With improved business accounting resulting from more organized business finances, rooting out any and all potential deductions will take less time and will help a lot come tax time. With the help of a qualified tax professional or innovative accounting software, your tax return will reflect a more accurate and optimized tax bill that will help your bottom line.
When you open a business bank account, you initiate the process of developing a potentially lucrative relationship with that bank. As you continue to work with a bank, they get to know you and your business better. Every successful business will eventually need business financing, and sometimes that financing can be sourced through traditional banks. You can often leverage your built-up goodwill with a bank to secure business loans at a lower interest rate and with better repayment terms that you would be able to otherwise. Additionally, getting financing through other sources of capital is easier when you have business bank accounts set up. Financiers will feel more comfortable loaning to you when you can easily show your business finances in tidy and organized accounting structures.
In today’s digital world, people don’t like to be restricted to cash to pay for goods and services. Potential customers or clients might be turned off from your business if they can’t use cashless payment methods. Lots of research about consumer preferences have shown that modern consumers, especially young ones, disproportionately prefer cashless payments for all types of purchases. While there are some services like Paypal that let you accept credit card payments with a personal account, you’re often limited in the volume of cash flow or could be charged outrageous fees. With business banking, you can more easily find merchant services to accept debit or credit card payments that pay into your business checking account. Sometimes these partners require that you have set-up business banking and won’t deposit business transactions into a personal checking account. Before setting up card payment services, make sure you shop around to get the best rates on processing rates and monthly fees.
While you can sometimes get away with getting approved for business credit cards without having dedicated business banking, the approval process is a heck of a lot easier when you have verifiable proof of a business entity in the form of a business bank account. If all you have to show for your business finances are a few invoices and a personal checking account, credit card companies won’t be afraid to turn you down even if you have a great credit score. Business credit cards can be a great way to optimize your spending and take advantage of lucrative travel and cash-back rewards. Putting business expenses on one or multiple business cards can maximize your ability to get cashback on normal expenses or build up travel miles for your next vacation.
