While it's possible to use a personal checking account to run your small business, a business account can offer serious benefits and limit your personal liability and risk.
Separating your personal and business income is a smart idea — even if your business is new, very small, or just a side hustle. Understanding some important differences between a business bank account vs. personal checking and savings can help you see why.
Also, to make choosing the right business bank account easier, follow our step-by-step guide for choosing a business bank account, or jump straight to our top choices for the best business bank accounts to get started on your search.
What’s The Difference Between A Business Bank Account VS Personal?
The difference between a business bank account and a personal account is very small, on the surface. A business checking or savings account looks and works pretty much like a personal account.
Both personal and business bank accounts allow individuals to manage their money through checking accounts, savings accounts, or high-yield savings options. Personal bank accounts by design are for individuals managing their personal finances, while business bank accounts have features and services in place that make them ideal for managing business finances.
The key difference between personal and business bank accounts is that one is attached to an individual person, and the other is attached to a business owner or business entity. This gives business owners an added level of liability but also majorly affects the eligibility requirements for opening an account.
There are more nuanced differences as well, such as the features each type of account offers. Business bank accounts offer perks like employee cards, spend management, and more to help businesses manage cash flow, while personal accounts have features like expense tracking, credit card monitoring, and spending insights to help individuals manage their personal credit and finances.
The Biggest Differences Between Personal VS Business Bank Accounts
There are several key areas that are affected by whether you choose to use a personal or business bank account to manage your business finances.
Accounting
When you use a personal bank account to handle business finances, you must have to be extra careful to track expenses and keep your personal and business expenditures separate. With a business account, that separation occurs naturally.
You’ll really see the benefits when it comes time to file your taxes, and doubly so if your business is audited by the IRS.
Liability
As hard as it may be to hear these numbers, almost half of new businesses won’t make it for five years. In fact, about one in five new businesses will fail within its first two years.
While you’re certainly doing everything you can to beat the odds, it just makes sense to protect your personal assets and savings. Having a separate business bank account that you use only for business transactions means that any claims or judgments against your business — for things like unpaid debts — can be applied only against your business assets, leaving your personal funds safe.
Legal Protections
If you run your business by yourself as a freelancer or independent contractor, you’re likely a sole proprietor, and you may be able to use your personal bank account to run things until your business grows a bit.
However, if your business is a partnership, LLC, or corporation, your business is an entity that’s legally separate from you personally, and you are required to separate your finances.
It’s not just a legal requirement; it’s also a smart idea. When you separate business and personal finances, your personal assets are protected from financial liability if your business is sued or faces bankruptcy.
Brand Identity
Having a business bank account is a giant step toward establishing a strong brand identity and projecting a professional image to everyone you do business with.
How so? When you use your personal account to run your business, customers make payments to you instead of to your business name. Any payments you send out for services, supplies, and other business expenses come from you personally.
Use a business bank account and that changes. Customers make payments to your business, instead of to you personally, and the payments you make come from the business and not from you.
Employee Access
If you plan to hire employees now or in the future, you may want to give them access to business funds to make purchases or pay bills on the business’s behalf. You won’t want to give them your personal account number or debit card. So you’ll need a business account.
Credit Opportunities
Opening a business bank account can also open doors to financial opportunities that just aren’t available to personal account holders. For starters, you’ll be able to build your business’s credit rating. And that will allow you to eventually apply for a loan, line of credit, or business credit card. You could even become eligible to access Small Business Association loans.
Credit Card Processing
Business bank accounts also include merchant services that allow you to accept credit and debit card payments from customers. While your bank is not your only option for merchant services, you can’t access those services through your bank with only a personal account.
Credit Score Building
Just as having a strong personal credit score is important, having and establishing a business credit score is a must — and it can’t happen without a business bank account.
Can You Use A Personal Bank Account For Business?
While you technically can use a personal bank account for business, we (and most accountants) don’t recommend it.
Very small businesses like side hustles, sole proprietors that don’t plan on growing, or individuals with a rental property, may be able to get away with managing their business finances with a personal bank account. They’ll need to keep very careful records so that all of their business and personal expenses are separated and documented, which will make their bookkeeping more complicated.
However, even small businesses like these can benefit from a business bank account.
Business bank accounts solidify your brand and build your reputation, limit your personal liability risks, and streamline your bookkeeping and tax-paying responsibilities. If you need business funding through a loan or credit card, you’re also going to need a business bank account in order to qualify.
For more information about the benefits of a business bank account, read our full article: Do I really need a business bank account?
How To Get The Right Bank Account For Your Business
The first step to choosing a business bank account is acknowledging the benefits of opening a business bank account for your small business. The benefits far outweigh the time and effort it takes to open an account, but where should you start looking for a business account?
Our best advice: take your time, know your needs, do your research, make your choice, and then focus your attention back where it belongs — building the strongest foundation possible for your small business success.
