When starting out, many business owners use their personal bank accounts to accept and spend money for their business. While it may, at first, seem more convenient to stick to your banking status quo, mixing these two accounts could cause some headaches in the long run. Opening a business account comes with a number of benefits. It can keep you legally compliant, provide some financial security and help you appear more professional to customers and vendors. Plus, having one account for the sole purpose of collecting from customers and paying your vendors makes it easier to log transactions and manage your business. Consider these additional reasons to have a dedicated bank account for your business.
It’s legally required for certain business structures
Any business operating as a separate legal entity from the owner is required to have a bank account dedicated to business transactions. That means that if your business is operating as a limited liability company (LLC), limited liability partnership (LLP) or a corporation, you’ll need to open that account with your IRS-issued Employee Identification Number (EIN). To open the account, you also may need to show other documents, such as a business license and trade name paperwork.
It allows you to accept credit card payments
For many business owners, the ability to accept credit card payments is the single biggest reason to open a business bank account. A personal bank account can’t accept credit card payments without the use of a payment service provider. Business bank accounts, on the other hand, are set up with these transactions in mind. Though this built-in feature could mean that having a business bank account is accompanied by more fees than a personal account, that tradeoff may be worth the benefit of capturing payments in a way that’s most convenient for your customers.
Your business will look more professional
In many ways, a business bank account denotes an air of seriousness that a personal account does not. You don’t want your customers thinking that your business is a hobby, do you? In fact, having a business name and payment system that are different from each other might raise red flags with some customers or vendors. A business bank account puts your business’s name on checks, credit cards and other payment methods, sewing credibility and trust into each financial touchpoint you have.
Doing so can help you prepare for growth
For some business owners, opening a business bank account is the first step in what could be a prosperous relationship between your business and a financial institution. It sets the foundation for building your business’s credit, which is helpful should you need financing down the road to fund growth in services or expansion in operations. Plus, when the time comes to learn about your options for a business line of credit or business loan, you’ll be able to take those exploratory steps with a financial institution you’ve come to trust — and one that is used to working with your business. And even if you don’t have any employees now, getting a business bank account established early helps lay the financial groundwork for taking on that system when you’re ready.
Tax preparation is made easier
From a tax perspective, having a business bank account simplifies the process of paying quarterly business taxes. The federal government stipulates that most individuals who own their own business must pay estimated tax four times each year. Having all your business’s income and expenses cataloged in one place makes calculating these estimates a much simpler and more straightforward process. Plus, keep in mind that should you be subject to a tax audit and don’t maintain a separate business bank account, your personal transactions may be subject to scrutiny.
It helps with liability and identity protection
It’s true that registering your business as an LLC or corporation provides some legal protection. However, if you don’t separate your finances from those of your business, your personal assets could still be vulnerable. If your business should endure a lawsuit and your personal finances are mingled in with your business finances, a case could be made that they are not, in fact, separate entities. Business bank accounts can also help keep your personal identity safe. The fact that you open a business account with your business’s EIN, not your social security number, helps make you less vulnerable to cybercrime targeting your business. This is especially important if your business makes a large number of transactions and, thus, is at higher risk for fraudulent activity.
Open a business account today
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