One major mistake many entrepreneurs and small business owners make is merging their personal and business finances, specifically by using the same bank account for both.
While this approach might suffice during the early stages of your entrepreneurial journey—providing simplicity and convenience—it can become a hindrance and even a big liability as your business evolves or grows. That’s why you should consider opening a separate business checking account as soon as possible.
In this guide, we’ll discuss the benefits of opening a business checking account and explain how to choose the right account for you.
While there’s no law that explicitly states that you must open or maintain a separate business bank account, there are several good reasons to consider it. Here are some key benefits of having a separate account for your business—whether it’s a sole proprietorship, a limited liability company (LLC), or a corporation.
Opening a business bank account creates a clear distinction between your personal and business finances. Without this separation, losing track of your business expenses is all too easy. A dedicated business account provides a more transparent view of your business’s incomings and outgoings, enabling you to monitor its financial health more effectively.
Moreover, a separate business account can help curb the temptation to use business funds for personal purposes—and vice versa.
Having a business account adds a layer of professionalism to your financial transactions. Payments and invoices issued from a business account rather than a personal checking account, for example, reinforce to clients and suppliers that you’re operating a serious, legitimate enterprise. This fosters trust and leads to better business relationships with these stakeholders.
Some business checking accounts come with the benefit of a dedicated business manager or advisor. This professional can provide valuable advice tailored to your specific business needs.
For example, they can help with financial planning, offer insights on cash flow management, and generally help you navigate the complexities of business banking.
This personalized support can be invaluable when it comes to effectively growing and managing your business.
Business bank accounts often include additional features particularly useful for businesses, such as bookkeeping software and payroll processing services. These tools can streamline various aspects of business management, saving you time and resources.
Having a dedicated business checking account can simplify the process of securing a loan or credit line for your business. When you establish a banking relationship with a specific bank, obtaining financial support from them is often easier.
Additionally, external lenders typically ask for several months’ worth of bank statements during the loan application process, and most require these statements to come from business accounts instead of personal ones.
A business bank account often allows for the setup of merchant services, enabling your business to accept credit card payments. This feature can help you expand your clientele and improve sales, as it provides your customers with a broader range of payment options.
A business account makes tax preparation more straightforward. With all business transactions consolidated in one place, it’s easier to track income, expenses, and potential tax deductions. This organization is especially beneficial during tax season, as it allows for more precise tax filings and can help reduce accounting expenses.
A separate business bank account can help protect your personal assets from business liabilities.
For example, suppose your business can’t pay a particular debt on time, or something else goes wrong, and you get sued.
Without a clear distinction between your personal and business finances, the court might presume that your business isn’t an independent entity and, therefore, might hold you personally liable for the debt. This would put your personal assets at risk.
When comparing business checking account options, pay close attention to the following features:
Business bank accounts typically come with various fees, including monthly service, transaction, and ATM fees.
Fee amounts can vary depending on the provider. For instance, digital-only banks tend to charge lower fees than traditional banks or even credit unions that have online business bank account options.
Some of the best banks charge no fees or offer various ways to waive them, such as by maintaining a minimum balance amount or sticking below a certain number of transactions.
It’s common practice for financial institutions to provide introductory offers to entice new customers. For example, some will award you a cash bonus when you open an account and deposit a certain amount. A sizable bonus can be a solid reason to consider going with a particular provider.
Look for financial institutions that offer robust digital tools for managing your bank account. Confirm that both its online and mobile platforms are easy to use and include important functionalities and services such as mobile check deposits, bill payment, fund transfers, real-time alerts, and card management.
Confirm that these platforms also offer strong security measures and features to protect your financial and business data. These can include encryption, 2-factor authentication, and fraud monitoring features.
Evaluate the transaction limits of the account. Ensure that both the number of transactions and the deposit and withdrawal limits align with your business needs. Remember that exceeding the set limits can incur additional fees, which could eat into your profits.
Confirm that the provider has sufficient ATMs nationwide or is part of a large ATM network. This is especially important if your business requires frequent cash withdrawals.
Most online banks charge fees for using out-of-network ATMs, but some might reimburse you up to a certain number of transactions per month. It’s best to stick with firms that are part of an extensive network to ensure you don’t rack up hefty ATM fees.
Conversely, a traditional brick-and-mortar bank might be preferable for businesses that need to deposit cash regularly. Some online banks offer cash deposit options through third-party arrangements, but this may come with additional fees.
Choose a provider that offers additional services that might benefit your business, such as savings accounts, business credit cards, loans, and lines of credit. Having these services under one roof can make overseeing your business’s finances much more manageable.
Look for a bank account that easily integrates with accounting, payroll, or tax preparation software or tools. Such integrations let you easily sync your financial data, which reduces the time and effort required for manual entry and improves your records’ accuracy.
While not all business checking accounts earn interest, some do. If this is important to you, compare the rates across different providers to find the most suitable option.
You can easily open a business checking account through your chosen provider’s website or mobile app.
Before you begin, prepare the necessary documents to ensure a seamless process. The exact documents required will vary depending on the structure of your business—i.e., whether it’s a sole proprietorship, a corporation, or an LLC.
Typically, most providers will ask for the following:
After you’ve submitted your application, the provider will review it and inform you of their decision. This could take anywhere from a few hours to a few days. The provider will reach out if it needs any extra information or clarification from you.
Once your account is open, the next step is to make your first deposit. You can do this through an electronic transfer from another account, by mailing a check, or by depositing it through the provider's mobile banking app. Some providers might require a minimum deposit to activate your account.
With your account set up, you’re ready to begin banking.
A business checking account is invaluable for any entrepreneur or business owner. Beyond helping keep your business and personal finances separate, it makes your business look more professional, can protect you from business liabilities, and simplifies your taxes. Thanks to online banking, you can open a free business bank account online in minutes.
Start by selecting a financial institution that meets your needs—considering its fees, online and mobile banking features, ATM access, additional banking services (e.g., business credit cards and loans), and integrations (e.g., bookkeeping and payroll processing). Next, prepare the necessary information and documents, and then apply online. Once approved, make your first deposit to officially activate your new account.