Starting a business is one of the most fulfilling experiences you can experience. However, it also a challenge and will make you feel like you don’t have enough time to attend to every little detail before you launch, like opening your business bank account.
You already have a personal account. Surely, you can use that for your business expenses. However, separating your business and personal bank accounts will actually save you more time and help you avoid legal troubles.=
Why Your Business Needs Its Own Bank Account
For starters, the IRS, Internal Revenue Service, requires incorporated businesses to get a dedicated business bank account. This requirement applies whether your business is a corporation, partnership, or incorporated sole partnership.
Likewise, even if your business’s structure is an unincorporated sole partnership that’s not legally required to have a business account, you should have one anyway. Lenders require that borrowers have a business account to even be considered for business loans.
Also, lenders won’t approve business loans unless the money could be deposited into a business account. You might be thinking that you’re not planning on taking out a business loan. But remember that your circumstances could change unexpectedly and you just might find yourself needing a business loan to expand or maintain your business.
In addition, you need a business account if you plan on accepting credit card payments for your services or products. If you’re in the retail business, you will require a business account for accepting payments via your POS system.
Business bank accounts come in various types and with different requirements. These include cash management accounts, savings accounts, and checking accounts. These come with different features so research your options well to ensure that you obtain a business account that will suit your particular requirements.
Advantages of Business Bank Accounts
Aside from ensuring that your business is IRS-compliant, opening a business account offers extra advantages when compared to handling your business’s finances using your personal account.
Business bank accounts offer protections and perks such as safeguarding personal assets and benefitting from tax credits and deductions. You also stand to benefit from the following:
Handle Your Expenses More Easily
Monitoring spending, keeping track of expenses, and avoiding overspending, which all figure significantly into any small business’s success, are all easier done when you place business finances in a business account. This includes generating statements and reports that reflect your business’s true financial status.
Financial Protection Your Business and Yourself
Keeping all your business finances separate from your personal finances by having a business account protects both your personal and your business funds. For example, let’s say that your business structure is an LLC.
You won’t have to worry about your personal funds being in jeopardy in case your business accrues debts that you can’t pay. Similarly, if you’re having issues with your personal finances, your business’s credit standing won’t be affected.
A Professional Edge
Your clients and customers can write checks directly to your business instead of to you as well as pay for services or goods with a debit or credit card all because you have a business account. Besides making your business look professional, these also help simplify your finances.
Less Stress and Hassle During Tax Season
Put simply, separating your personal expenses from your business expenses will ensure that your business could benefit from business-related tax credits and deductions without risking an audit.
Having a separate bank account for your business, whether a savings account or a free checking bank account, instead of mixing your personal and business finances, streamlines tax prep, safeguards your personal and business funds, and shows how professional you are.