5 reasons to open a business checking account
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Whether you’re a freelancer, self-employed or own a small business, you should probably have a business checking account. These are special bank accounts designed with businesses in mind, offering services targeted at business owners rather than individuals.
It can be tempting just to use your personal checking account for your company, especially if you’re just starting out, but it’s best to open a dedicated business account.
Here are the top five reasons to open a business checking account.
1. Lessen tax headaches
One of the realities of running a small business is filing business taxes. Very few people enjoy organizing and filling out tax paperwork, so anything you can do to make your taxes easier is a good thing.
When you file business taxes, you need to determine your business’s income and expenses. If you use your personal bank account for your business, that means sorting through hundreds or thousands of transactions to figure out which ones are associated with your business.
Keeping your personal and business finances separate makes it much easier to keep track of your business’s performance and makes filing taxes a simpler process.
2. Helps you qualify for loans to grow your business
Keeping your business finances separate can also help you qualify for loans, both for your company and for yourself.
People borrow money for a number of reasons. You might want to use a loan to help expand your business or you might need a mortgage to buy a home. Lenders take a close look at your finances when you apply for a loan and having your business and personal finances mixed together can make life complicated.
“For things like home or auto loans, self-employed persons often have to go to greater lengths than W-2 employees to document not only their earnings, but the consistency of those earnings,” says Brenton Harrison, a financial advisor at Tennessee-based New Money, New Problems. “Unfortunately, many independent contractors have their business revenues deposited into their personal bank accounts. This commingling of deposits and transactions can make it difficult for lenders to make a distinction between your household finances and the finances of your business.”
3. Reduces your personal liability for your business
Depending on the type of company that you have, a major benefit of keeping a separate account for your business is liability, explains John Huntinghouse, vice president of marketing at TAB Bank. “Business checking accounts are so important because they separate your personal transactions from your business ones. There are tax and liability reasons as to why you would want to open a business checking account.”
For example, if you run a limited liability company, or LLC, someone who sues your business cannot access your personal funds. They can only take money from your business. If you don’t have a separate bank account for your business, you may lose the liability protections offered by your LLC and be personally liable for your company’s debts.
4. Empowers your employees
If your business starts to grow, it can be difficult to handle all of the banking on your own. Depositing cash, mailing checks, and paying your suppliers can take up a lot of time that could be better spent running and growing your business.
If you have employees that you trust, you can delegate some of these tasks to them if you have a business checking account. You can give these employees the access required to accomplish basic tasks without having to give them full control over your personal checking account.
You can also give access to service providers, such as accountants, to make it easier for them to provide their service to your business.
5. Provides you with business-focused features
Personal checking accounts are designed for individuals, so they have features designed for everyday people. Similarly, business checking accounts are designed to be used by businesses, so banks focus on adding features and perks that will benefit business owners.
For example, business checking accounts may have features that let you easily accept credit and debit card payments. They may also include payroll software built into the account, integrate with bookkeeping software or partner with popular business service providers that let you get a discount on their services.
These features can help your business save money and operate more efficiently. Some of these services will come with additional fees, however. As you compare business checking accounts, ask what type of fees are associated with the account.
How to choose the right business checking account
Choosing a business checking account is pretty similar to choosing one to use in your personal life. You want to look at things like the account’s fee structure and the features it offers.
In general, the lower the fees, the better. Sometimes, accounts with premium features and perks are worth paying for, but the less you can pay for them, the more money you can keep in your business. Watch out for things like monthly maintenance fees and fees for cash deposits over a certain amount each month. If you run a cash-heavy business, these can add up.
Also, make sure the account’s features fit with your business needs. If you run a cash-heavy company, an online business checking account that doesn’t accept cash deposits won’t be the right choice for your business. If you do a lot of your business’s spending with a debit card, an account that offers debit card rewards could be a boon for your company.
Once you know what account you want, here’s what you’ll need to open it. Make sure to do your research first.
— Bankrate’s Marcos Cabello contributed to an update of this story.
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