When you’re looking to join the estimated 33.2 million small businesses operating in the U.S. and preparing to launch your company, having a business bank account is a smart move. There are drawbacks to mixing your personal finances with those of your company, including issues with security, liability, compliance, and more. Plus, separating them simplifies the financial side of running your business. Here’s a closer look at four reasons why you need a business bank account.
1. It May Be Required
Any business entity that operates separately from the owner from a legal standpoint is often required to have a business bank account. Generally speaking, that includes limited liability companies (LLCs), corporations, and partnerships. By having a business bank account, you maintain the required degree of separation.
If you’re operating as a sole proprietor, a business bank account isn’t necessarily required by law. However, having one is often beneficial, as it can make monitoring your business expenses and revenues easier.
2. It Provides Protection
Without a business bank account, you’re potentially opening yourself up to some liability. Even if you’re using a corporation or LLC, a commingled company and personal account suggests that the business and you aren’t functionally separate entities. As a result, personal assets are more likely to end up at risk during lawsuits or similar situations.
Additionally, having a business bank account can reduce certain other risks, including your chances of becoming a victim of identity theft. In 2021, the Federal Trade Commission (FTC) received nearly 1.4 million identity theft reports. Since business bank accounts often require employer identification numbers (EINs), you aren’t putting your Social Security Number (SSN) out there as often, which could make you less vulnerable.
In some cases, business bank accounts also come with fraud insurance protection. Those policies reduce the harm caused by fraudulent transactions, reducing losses and keeping negative remarks off of your business credit report.
3. It Simplifies Taxes
When you have a business bank account, managing your tax filings and payments is typically easier. It’s far simpler to track revenue and expenses, allowing companies to more accurately estimate their quarterly payments and complete their annual filings.
Additionally, by having a business bank account, you reduce your exposure during audits. If you use a personal bank account for business operations, all of your transactions – both personal and company-related – are potentially subject to scrutiny. By using a separate business bank account, audits related to your company will only involve your business accounts.
4. It Streamlines Payments
With a business bank account, you often get features that aren’t available if you’re using a personal account instead. For example, many business bank accounts let you accept credit card payments from customers. It’s typically a built-in feature that simplifies receipt of payments from others.
A business bank account might also make more payment-related services available. For example, you may get access to payroll processing or merchant services. Additionally, bookkeeping platform integration is common. Finally, the ability to issue debit cards to employees is often part of the equation, making it easier for authorized employees to pay for business expenses directly.
