As a budding entrepreneur, it might be tempting to whip out your personal credit card to pay for startup costs — just think of the points! — but not so fast. The benefits of a business checking account are plentiful, and you don’t need a business income to open one.
Separating your business and personal finances is the best way to manage your business’s cash flow, payroll and taxes. Here’s why you should open a dedicated bank account for your business — no matter the size, age or industry.
Can I Use a Personal Checking Account for My Business?
If your business is a corporation or a limited liability company (LLC), you’re legally required to separate your personal and business accounts.
If your business is a sole proprietorship, you essentially are your business. You might be wondering, “Do I have to use a business bank account?” In this case, no. However, you may lose out on these five big benefits if you keep your personal and business expenses together.
How Can Using a Business Bank Account Benefit Me?
1. Legitimize Your Business
A business checking account helps you level up your credibility. Payments coming from your business account will look polished and professional. Additionally, many merchant services require a commercial account to accept debit and credit card transactions.
2. Reduce Stress on Tax Day
No small business owner looks forward to tax season, which is bound to be filled with receipts, expense reports and documents galore. Filing taxes is a lot more complicated when you’re sorting out business expenses from personal ones. Separating business and personal finances into dedicated accounts greatly streamlines the tax filing process. Because you’ll be more organized, you’ll be better equipped to seek out tax deductions and minimize your tax burden.
3. Qualify for Better Financing
Separating business and personal finances is key to building your business’s credit history. Your own credit score certainly matters as you kickstart your business. But as you prepare for growth, financers will also want to see a positive business credit history — that’s how you’ll secure better interest rates and loan terms.
4. Protect Your Assets — Both Personal and Business
By using just one account for personal and business life, you put both at risk. Here’s why: Your personal assets can essentially be treated as business assets — and be vulnerable to creditors and lawsuits. If you need to file bankruptcy as a sole proprietor, you’d need to file for personal bankruptcy. Registering your business as a corporation or LLC and separating checking accounts offers you liability protection.
5. Take Advantage of Business Account Features
Don’t discount the benefits of a business checking account. These accounts are specifically created with small businesses in mind and offer services like invoicing, payroll processing, payment services and enhanced security. You can also add employees to the account for additional debit and credit cards.
Your Business, Your Future
As your business grows, your coverage should match it. Talk with your Farm Bureau agent today to ensure your business insurance is tailored to your unique needs.