Can You Use Your Personal Bank Account For Business?
It's normal for new business owners to use personal bank accounts to manage business finances, but there are real advantages to using business checking instead.
It’s pretty common to use a personal bank account to fund a new business. As you grow, can you still use your personal bank account for business? This article will show you the benefits of opening a business bank account, help you know when it’s time to move from a personal account, and offer tips to find the right business bank account.
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Can I Use A Personal Bank Account For Business?
It’s pretty common to use a personal bank account to fund a new business. That’s especially true if you’ve been slowly building a side gig into a profitable business. And if you continue to operate your business as a sole proprietorship, no rules or regulations prevent you from using a personal bank account to manage your business expenses.
Still, as your business grows and becomes more complicated, your business structure may change. If you decide to take on a partner or register as an LLC, that’s definitely a sign that you should make the move to using business accounts for your banking. In fact, at that point, a business bank account may become a legal requirement.
What Is A Business Bank Account?
Opening a business bank account is similar to opening a personal account, with some differences. You’ll need to show some personal identification, like a driver’s license, and provide some information about your business. The more complicated your business structure, the more documentation you may have to show. You can learn everything you need to know in our guide to opening a business bank account.
4 Benefits Of Using A Business Bank Account
It’s smart to use a business bank account instead of a personal account. Here are four reasons why:
1. A Business Bank Account Makes You Seem Professional
Using a business account to pay your bills and suppliers contributes to the favorable professional impression you want to create. It also means your customers will make payment to your business name, and not to you personally. “Chris Smith Landscaping” or “A Cut Above” makes a better impression and makes your business sound legit.
If you’re using your personal checking account, you won’t have your business name on your checks, so make sure to choose a background for your printed checks that convey a professional tone, instead of something personally meaningful to you or just plain fun. The bank’s default check pattern is probably a good bet.
2. A Business Bank Account Helps You Keep Business & Personal Expenses Separate
Using a personal bank account to run your business may save some time now. But it can cause big hassles down the road.
If you have a history of mixing business and personal assets, your personal finances could be at risk if you ever decide to seek bankruptcy protection for your business, if your business fails, or if you’re sued. Isolating business funds in their own account keeps your business and personal interests separated and offers you financial protection.
That’s not to say you can’t do all that when you use a personal bank account for your business. Just be meticulous about keeping business and personal expenses separate, always.
3. A Business Bank Account Helps You Stay Organized
Business banking allows you to keep clean records of your business expenses. That’s something business owners — and their accountants — find very helpful when tax time rolls around. In fact, mixing personal and business funds can be a red flag to the IRS and lead to tax troubles. So if you’re using personal accounts to run your business, keep detailed records and save your receipts using an organized system.
Remember, if your business is organized as a partnership or LLC, you’re legally required to keep your finances separate. For sole proprietors, it’s simply a smart move.
4. A Business Bank Account Builds Your Future
If you’re hoping to grow your business, you might want to start a business checking account sooner rather than later. Even if you don’t need complicated financial services at this point, you probably will later.
So the sooner you establish a business relationship with a bank, the better. Then, when you need a business loan or a line of credit, you will have connections and a track record to draw on. You’ll also be able to get a business credit card that can not only help you manage day-to-day expenses but also deliver valuable rewards for spending.
Checking out our list of the best business credit card rewards can help you see the benefits!
Find The Right Bank Account For Your Business
Are you convinced? Ready to open your first business bank account?
That’s a great choice. So what’s the next move?
How To Open A Business Bank Account
You can probably open a business bank account without even leaving your home or place of business. Applying online is incredibly common, and incredibly quick.
To make the process go as smoothly as possible, take some time to gather the documentation you’ll need. Set yourself up for success by reading our full list of documents needed to open a business bank account.
You’ll definitely need your employee identification number (EIN), if you have one, or your Social Security number. You’ll also need your business license, if you have one, and your business formation documents (if your business is a partnership, LLC, or corporation).
Choose The Right Bank Account For Your Small Business
We have some suggestions for how to choose the right business bank account, too!
If you’re working as a freelancer or independent contractor, there are some business bank accounts aimed directly at you. We highlight nine great best bank accounts for freelancers. You’ll find some great options on that list, including some with $0 monthly fees and $0 minimum balances.
If your business is a little larger and you’d like a little more from your business bank, we’ve got you covered. We spotlight some slightly larger banking options on our list of the best bank accounts for small businesses. The providers on this list have a lot to offer growing businesses, including loans, lines of credit, and merchant services.
Opening a business bank account isn’t the only way to manage your business finances, of course. You can also get funding from credit cards or a small business loan. (If you’re thinking about applying for a loan, start your search with our list of the best banks for small business loans.)
No matter how you decide to manage your money and your business, if you want to succeed, pay attention to your finances! If you’re not already well-versed in the basics of business bookkeeping, add that to your to-do list. After all, managing your money can be challenging, but it’s worth putting in the time to get it right.