When should you get a business checking account?

August 03, 2022
Small business checking account
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Small businesses are a lot like snowflakes — no two are exactly alike.

From side hustles and gigs to multiple streams of income to traditional brick-and-mortar launches, each small business has unique banking needs. And each is different in terms of what banking tools they need to run smoothly.

If you’re starting up a small business and wonder if you need a separate business checking account, you’re not alone. So many new business owners contemplate whether it’s necessary to keep funds in a standalone business account when just starting out. So let’s break down what’s involved in business banking and why you might — or might not — want to open that business banking account.

Business checking vs. personal checking accounts

From a user perspective, business checking accounts aren’t much different from personal checking accounts. A business account user can make deposits and withdrawals, draft checks, and make ACH payments, and a handy debit card allows account owners to withdraw cash and make purchases.

The main difference between the accounts, however, is the cost. Most personal checking accounts don’t charge a monthly fee, while most business checking accounts have associated fees. Some banks, like UBT, have free business checking if you have minimal transactions per month or keep a minimum account balance.

Pros of a business checking account

While your small side hustle or random gigs might not warrant a separate business checking account, there are a lot of reasons most small business owners would benefit from separating their personal account from the business transactions.

Here are some quick bullet-point reasons for making the switch to a business banking account.

  • Keep it separated. Having business expenses and income separate from your personal account makes it easier to see which expenditures apply to which. Combining it all in your personal account can make reconciliations complicated and time-consuming.
  • Professionalism. Image matters, and if you’re writing business checks out of your personal account, your credibility might take a hit. Having a business account legitimizes you if you want to apply for a business credit card or loan down the road.
  • Tax simplification. While it isn’t law, the IRS recommends that all business owners have a separate business checking account. This makes calculating taxes much easier than trying to parse personal from professional in your main bank account.
  • Future growth. If you plan to grow, you’ll have a much easier time with your financial accounting if you start with a separate business account. In fact, it’s a savvy way to plan for future growth.
  • Sales potential. When you first start out, it’s probably not on your mind to eventually sell your business. But anyone looking to purchase your business down the road will want to see a history of its transactions. A business checking account will make that process simple.
  • Liability protection. If you’re registered as an LLC or other business entity and someone tries to sue you, having business expenses mingling with your personal funds could make your personal funds vulnerable to liability.

If you’re in the process of starting out in business for yourself, opening a separate account might not be at the top of your priority list. Thankfully, we make the process quick and easy so you can get back to all the other tasks associated with your business. Reach out to one of our small business experts for their wisdom and assistance any time.

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Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.

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