Do I Need a Separate Bank Account for My Small Business?
TL;DR: Maintaining Separation Between Your Business and Personal Life Saves You Time and Sanity
As a small business owner, you may not see the need to open a business bank account. After all, products like QuickBooks and FreshBooks make it easy to sort business from personal. But if the goal is to grow fast (it should be), you’ll be glad you separated sooner rather than later. Opening a business bank account not only helps reduce personal time and stress, it makes your customers, accountants, and auditors happy, too.
1. Clean & Tidy Accounting
When first starting out, you’re mainly worried about making money. From an accounting perspective, that means tracking the occasional incoming deposit here and there. You’re not thinking about overhead costs or employees. Right now, it’s just you. But eventually, the outgoing expenses will stack up. All of a sudden, flagging business payments as they fly in and out is a nightmare.
While you might trust your memory, the IRS won’t. By separating your bank accounts in the beginning, you never have to worry about migrating or backtracking. Everything’s already in its proper place. In addition to saving personal time and sanity, you have a clean, business-only record of payables and receivables to provide your bookkeeper and, if audited, the IRS.
2. Legitimize Your Business
A separate business bank account is just as important to an incorporated company as a business name. The IRS requires every incorporated business to keep a separate business bank account.
Even if your company does not fall under the incorporated (Inc.) designation, a separate bank account is still ideal. A dedicated business account helps provide proof that you’re running a legitimate, money-making operation. To distinguish businesses from hobbies, the IRS requires all businesses to show profit three out of five years. If you’re regularly deducting more money than you’re generating, the IRS gets suspicious. A dedicated business account makes it easier to properly deduct expenses and show business profit. Together, your business bank account, accurate bookkeeping, and branded marketing materials boost your business’s professionalism and legitimacy to the IRS.
3. Take Advantage of Extra Business Banking Services
Many banks offer additional services to their business account customers. By opening a business account, you open up a new banking relationship. Because it’s easier to grow a relationship than establish a new one, applying for a business loan or adding banking services at the same bank you have a business account is quick and easy.
Business banking is really no different than scheduling a doctor appointment. Your existing doctor will get you in quick; a new doctor often requires a longer wait. After all, service professionals have an obligation to their existing clients. Once you’re in the system, advice is a phone call away.
When considering a business bank account, be sure to ask about the bank’s Business Loan and Treasury Management services. Ultimately, you’ll want to go with a full-service business bank with the capability to grow with you.