Do I Need A Business Bank Account?

Now that your small business is growing, you’re wondering, do I need a business bank account?

The answer is yes, even if you’re the only employee and your revenue, while growing, is still small. Keep reading to learn why you need a business bank account and how to set one up for your small business! Then check out the best small business bank accounts to get started on your search for the best business banking option.

Do I Need A Business Bank Account?

Almost every small business owner should be using a business bank account. The benefits of having a business bank account can outweigh the time and effort it takes to open a business bank account.

Business bank accounts grant business owners liability protection, access to business lending options, improved credit building, and make it far easier to separate personal vs business expenses, which is key for maintaining proper small business accounting practices.

The Benefits Of Having A Business Bank Account

There are several important benefits of having a business checking and/or savings account.

Establish & Support Business Credibility

Business banking allows you to pay your suppliers and bills using an account and/or checks with your business name on them. That alone boosts your professional reputation and reassures those with whom you’re doing business that you’re both legitimate and here to stay.

Make Financial Management Easier

Sure, it’s possible to use your personal account  — you can even use a personal credit card to run your business. However, doing so means you need to take extra steps to track and separate your personal and business expenses. Even more important, mixing funds can actually trigger an IRS audit, which is something few people enjoy.

It’s important to separate your business income and costs from personal to give yourself the ability to have organized banking and financial records. This is crucial if you plan to sell your business one day, add partners or investors, and manage your expenses wisely. Not complying with tax laws is an easy way to end your business’s journey quickly.

Limit Personal Legal & Fiscal Liability

When you separate your business and personal funds in different bank accounts, your personal assets are protected from liability if your business is sued or seeks bankruptcy protection. That’s not the case if you run your business using your personal accounts and mingle your business and personal funds, no matter how carefully you keep track of everything. So unless you are comfortable risking everything you own, establishing a business bank account should be a priority.

Run Your Business More Efficiently

When opening a business bank account, you will find numerous ways to improve your business efficiency. And even if your business is still relatively small and easy to manage, smart business owners always have growth on their minds.

For one thing, when you separate your funds by setting up business banking services, it’s easier to use accounting software to track your finances and pay your bills. Business banking accounts are, by design, made to accommodate payroll and online banking services. That can make everything easier, from daily operations to tax filing at the end of the fiscal year. And if your future plans include hiring employees, business banking can help there, too.

If your business takes off, you may want to hire a CPA or tax professional to help you with your finances — and you probably won’t want that person seeing every personal purchase you make. Even if you’re fine managing your business funds now, look ahead and sign up for a business account.

Allow Others To Access Financial Information

This might not seem like a big motivation right now if you’re the sole owner and your business’s only employee. But peer into the future a few years. Do you see yourself hiring anyone to help you run your business? How comfortable will you feel allowing others to log in to your personal bank account to check to see if a payment has cleared or an invoice has been paid?

Business banking accounts are inherently scalable, which makes it easier to change and grow with your small business’s needs. If you’re eventually too busy to manage every business transaction yourself or you hire more employees, it’s important to have a business banking account because it gives you the ability to allow others signing authority.

On the same note, many business bank accounts allow you to give multiple credit cards to your employees. This saves you the hassle of reimbursement and keeping track of receipts from employee purchases.

Establish A Credit History For Your Business

Right now, you may not need any additional funding for your small business. That could change, and you might someday want to apply for a loan, a line of credit, or a business credit card. If your business does not have established business credit scores, you’ll find it very difficult, if not impossible, to qualify for credit.

The good news is that you can build your business credit rating without taking on debt. Simply open a business account, and you’re on your way.

Access Credit Card Processing Services

How do you accept payment from customers at the moment? If you want to accept credit cards in person, you might need to access a merchant services account from your bank. Business bank accounts with merchant services are able to process credit and debit card payments from customers. That’s not an option if you’re using your personal accounts to manage your business finances.

Qualify For Lending & Credit Cards

If your business ever is in need of a business credit card or small business loan, almost all lenders and credit card issuers require you to have a business bank account. These issuers want to see that you have an established, financially stable business, and one of the best ways to show that is through having an active business bank account.

Maximizing On Business Banking Rewards

Many banks that are focused on businesses offer enticing business perks like cash-back, APY earnings, spending rewards, and business software and partner discounts.

When You Need A Business Bank Account

Here’s one simple way to know whether it’s time to set up business banking services: As soon as your business or business idea is developed enough that you think to ask the question, answer it with a “Yes!”

Simply put, a business bank account is an essential tool, just like the internet or a computer. You could run your business without it, but why should you?

If your business is officially structured, meaning incorporated as an LLC or as an S- or C-Corp, your business is considered its own separate legal entity, and you definitely need a business bank account to manage your finances.

So if you’re already incorporated or if you’re heading that way, start looking into business banking options as part of your planning.

When You Don’t Need A Business Bank Account

Although there’s no reason any small business owner should avoid business banking services, there is one type of business that, strictly speaking, doesn’t need it.

If your business is classified as a sole proprietorship, rather than a partnership, LLC, or corporation, your business is not a legally separate entity. So you may find it convenient to continue using your personal accounts to manage your business.

How can you tell if you’re a sole proprietor? If you consider yourself to be a freelancer, self-employed, or an independent contractor, it’s likely you’re a sole proprietor.

While sole proprietors don’t have to have a separate bank account, they can if they want the benefits of a business bank account.

How To Find & Get The Right Business Bank Account

Whether you’re motivated by the boost to your business reputation, the extra liability protection, or the reduction in your risk of flagging an IRS audit, you’ll find what you need when you open a business bank account.

You’ll set up your company for future growth by allowing employees access to your financial information, establishing a credit history for your business, and making both bookkeeping and tax filing easier, even as your business grows and becomes more complex.