The IRS recommends that all small business owners have separate bank accounts. While a sole proprietor (a person who owns a business and is personally responsible for their debts) isn't legally required to use a business checking account, it's still a good idea from a tax perspective. A business loan can help you grow your business faster by taking advantage of other people's money. Business credit is another asset that increases the value of your company.
After you give your company a name, a business bank account is one of the first assets you acquire when starting a business. Without a business checking account, you have no way to properly manage your company's income or expenses, accept credit cards, write business checks, generate business credit, or conduct business transactions. The benefits of having a business bank account far outweigh the costs. However, not all business bank accounts are created the same way.
That's why it's important to distinguish between good business bank accounts, bad and the best. A business checking account also offers benefits that a personal checking account doesn't (p. ex. Some banks don't charge maintenance or account opening fees, while others may have one or both.
You must first have a business bank account so that, when you receive income, you have a safe place to store it. Legally you can, but we strongly recommend that you don't. It's best to keep all personal and business expenses separate. LLCs and corporations are legal business entities that require a separate business bank account.
In addition to the legal point of view, having a separate business checking account and a separate business savings account can add value to your business should you ever decide to sell it. These accounts are assets that can be transferred with the sale of your business. In general terms, we recommend Relay for small businesses because of the low transaction fees, the option of not paying monthly fees, and the large number of third-party integrations and discounts. A business checking account works much like a personal checking account.
Once you open your account, you can make deposits and withdrawals, write checks, send payments via ACH and bank transfer, and use a debit card to make purchases. Combining business and personal accounts is a sure-fire way to cut through the corporate veil, eliminating the limited liability protections you have with your LLC in a court of law. You should open a business savings account as soon as you have a large amount of capital in your business checking account. Having a business bank account also allows you to establish a relationship with your company's bank, which will help if you need additional banking products, such as retirement planning, business services, and small business loans.
Finally, some business checking accounts offer the option of requesting employee debit cards, allowing employees to make purchases and withdraw money using the company's checking account. Interest rates are often higher than what you would receive from a business savings account or a business checking account that earns interest. It gives you credibility: having a business checking account helps your company look less like a hobby and more like a legitimate business. Combining personal and business expenses can be much more expensive than opening a business checking account.
Whether or not you legally need to have a business checking account depends on the legal structure of your company. A business savings account is a special business bank account that allows you to securely save money in a bank. Build a relationship with business banking: Many business owners don't realize that there are business credit scores, but they are an important factor when applying for funding, such as small business loans. Once you've opened a business checking account, it's time to start considering a good business credit card and business savings account.
Even if you never mix the two personal accounts, if you are sued for business negligence or unpaid business debts, you will likely be held responsible. A business loan may be the last thing on your mind, but it's important to plan well in advance to get a business loan. In general, sole proprietors primarily provide their own personal information, while LLCs and corporations will need more business documentation and personal information from all major owners. While a business checking account won't necessarily help you build business credit, it will help you establish your business, signaling to credit bureaus that it's time to create a credit report for that purpose.