8 Reasons Why You Need a Bank Account for Your Business
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Opening a business bank account may seem like an unnecessary responsibility, especially if you’re self-employed or don’t have any employees. And we get it—with all of the hard work you put in, why do you need a business bank account to track along with everything else? What can you do with a business bank account that you can’t do with a personal account?
Several things, actually. It makes accounting easier. It gives your business an air of professionalism. It’s a safeguard if your business gets audited. And it makes it far easier to get the funding your business needs through grants, credit, or business loans.
Let’s take a deeper dive into what is a business account and how it can position you for success. Here are eight reasons why it’s a great idea. NorthOne is a popular business banking choice and they are passionate about making business banking easier for small business owners, because it should be!
1. Keeps Business and Personal Finances Separated
It may have been easy and sufficient to conduct transactions through your personal bank or credit account when you were just getting your business off the ground in the first few months. Who knew how your business would grow?
But once you settle into a routine (or even a bit before), it’s best to open another account for your business. It’s simply better bookkeeping to run business income and expenses through a separate instrument, where you can store receipts and take care of expenses through a business check or credit line.
2. Gives You Legal Protection
A separate business account gives you considerable protection against personal liability. If you have a company account and come up against legal issues related to your business, legal actions and insurance claims can only be taken against your business. Prosecutors cannot touch your personal funds.
You can also arrange for merchant services to secure private customer or client information with a business account. That’s a business edge that helps your business stand out among your competitors.
You’ll also be better protected in case of fraud or identity theft, which are crimes that businesses must contend with these days. If you keep a business account and an employer ID number (EIN) instead of your Social Security number, the fallout will be restricted to your business.
3. Makes Your Business Look Legit
Appearances matter in business. When a customer sends money to a business rather than an individual, it gives your business some clout. If you pay a vendor with a check or credit charge through your business, it gives off an air of authority.
That image goes much further than you might think. Customers feel they’re dealing with a secure, professional entity, and vendors take your business more seriously. Those factors only add to your reputation and attract more business.
4. Helps You Fund and Grow Your Business
The bank you open your business account with isn’t just a place to stow your cash — it’s an entity that can help you grow your cash. By opening a business credit card account or establishing a line of credit with your bank, you gain a lot of purchasing power. You’ll have more resources for funding the things you need to expand your business.
Having a solid business relationship with a bank also makes it easier to line up a loan. It’s also needed to facilitate small business grants, which can be extremely helpful in your company’s startup phase.
5. Lets You Accept Credit Cards
The world runs on credit. It’s far and away the most preferred way to pay for something. In 2020, credit was the payment method of choice in 38% of all point-of-sale purchases.
Plain and simple, you need a business account to accept credit cards. You can’t receive credit payments through a personal account. By giving your customers the choice to pay with credit, you get access to the most extensive financial apparatus in the world. On top of that, credit transactions are the easiest to record and track.
6. Simplifies Tax Filings and Audits
Whether you complete your tax filings yourself or have them done by an outside accountant (which we recommend), you’ll save someone a world of hurt if you separate your business and personal accounts.
If your expenses are mingled together in one account, it will take a lot of time to identify and isolate business expenditures. Human error will come into play, and it’s likely you (or your accountant) will miss a deductible business expense or two, or five, or ten. This will cost you money. And if you use an accountant, they’ll have to charge for the extra time spent researching your books.
With a business account, all these issues go away. Every transaction is business-related, so there’s no need to hunt and peck through them all. You also avoid the financial loss from missed deductions and added work expenses.
A business account can also save you in case of an IRS audit, a process that tends to be not fun. But business account statements serve as a permanent paper trail. Having all of your auditable information organized in a business account can speed up the audit process and could even help you survive it.
7. Required for Incorporation or Partnership
Say you’ve done everything right and put your business in a position to expand. Either you've gotten to the point where you want to incorporate your business, or you've found someone who wants to become your partner.
For both of these scenarios, you need a business account in place. When a business incorporates, it becomes its own entity, utterly distinct from the individuals who own it. It has to have its own account.
Likewise, if you enter into a partnership, it means at least one other person will have control over the financial workings of the business. Your partner won’t be able to manage any of that if the funds are in a personal account. And you don’t want a partner rifling through your personal financial information, either.
8. Makes Selling Your Business Easier
When it comes time to sell your business, prospective buyers will want to review your company’s financial history. This request, while fair, goes beyond your monthly or annual bank statements. It includes every financial transaction your business has ever made. For that deep dive, it’s best to have one account for the source of all information.
After someone buys your business, they own everything connected to it: property, equipment, inventory, title — and bank account. That account must be in place for the new owner to take it over. It should be easy to see how running a business through a personal account could make this difficult.
What You Need to Start a Business Bank Account
Now that you know what you can do with a business bank account, what information do you need to set it up?
If you haven’t gotten a unique employer ID number, contact the IRS to get one. You can do this online, by mail, or even by fax if you prefer.
Business Formation Documents
Gather all of the documents that were necessary when you registered your company for the first time—ownership agreements, certificates, incorporation forms, lists of directors and their ID numbers, letters from the ROC, and so forth.
Be prepared to show your business license as issued by your state of incorporation.
“Should I Open a Business Bank Account?”
We hope the information we’ve provided has led you to an unambiguous “yes.”
The original question was, what can you do with a business bank account? But, really, what can’t you do with a business account? The great conveniences far outweigh the small effort it will take to open a business account. It’s the core of your company’s future success.
Need funding to grow your business? Fundid is re-imagining how companies get the funding they need to grow. Join our Grant Match Program to get grants that match your business sent directly to you or search for grants in the Grant Marketplace.