If you ask small business owners about the biggest challenges they face while launching and growing their companies, some of them will undoubtedly bring up money management. Successfully handling the financial side of your business usually involves a learning curve — it takes a bit more knowledge and practice than balancing a personal budget.
One question many entrepreneurs have when they’re getting started is: Does your small business need a designated bank account? Or can you just use a personal account you already have open? Here’s what you need to know about small business bank accounts.
Guard Yourself Against Liability
Perhaps the most obvious reason why it’s smart to open a business-only bank account is that it protects you as an individual against certain kinds of liability. In some cases, if someone sues your business, having kept a clear divide between company and personal funds can protect you from losing personal assets — like your savings or physical property.
As one expert writes for Forbes, having a separate bank account is just one component of maximizing your protection against personal liability. The others are establishing your business as a legal entity — for instance, an LLC — and getting an Employer ID number.
Make Tax Season Easier
Another compelling reason to set up a business bank account? Doing so tends to greatly simplify the process of filing tax returns for your business. Rather than having to search through a combined stream of personal and business-related expenses, all expenditures related to your business operations will already be isolated. Not only can this make tax season much less of a hassle for you, but it can also help you better understand which costs are tax deductible.
Get a Higher Credit Limit
Business and personal bank accounts are two different products. As such, they tend to have different terms and limits. As the U.S. Small Business Administration writes, business bank accounts are more likely to offer larger lines of credit — which is very handy when you are trying to borrow money to afford start-up costs you’re not yet able to buy out of pocket.
Just like you would compare terms and conditions for personal checking or savings accounts before signing up, shop around to find the best-fitting business account for your company’s specific needs.
The ability to access a line of credit for your business can be an important safety net for your company. Even if you never end up using it, it’s good to know you can access quick cash at a reasonable interest rate in the event of an emergency. Plus, utilizing this resource and making timely payments on what you owe will help your business raise its credit rating along the way.
Boost Your Company Credibility
The type of bank account you use for your company may even affect people’s perception of how trustworthy your company is or is not. Customers may question the legitimacy of your business if they have to write a check or send an electronic payment to your personal bank account rather than one listed under your small business’s name.
It's tough to put a price on your company’s sense of professionalism. Especially if you’re seeking funding from a lending institution or investor, you want to put your best foot forward. Having a separate business account under the company’s name certainly lends some credibility to your organization compared to using your personal account under your own name.
Want to protect your personal assets from liability, make your company look more legitimate to outsiders, simplify tax season and gain access to business lines of credit? Then your small business needs a business bank account.