You have probably heard it before – every business should have a business bank account. But opening a business bank account can seem like extra and possibly unnecessary work, particularly if you are just starting your business. Why go to the hassle of reviewing different financial institutions, communicating with the bank, filling out all the paperwork and conducting all your business transactions with a new account instead of using the personal account you have now? Well, there are multiple reasons to get a business bank account, all of them worth seriously considering if you want to save yourself a lot of headaches down the line.
Why You Need a Business Bank Account – 5 Reasons
1. Maintaining The Corporate Veil To Avoid Legal Liability
It can be unsettling to realize just how easily your business could be sued. You don’t even have to do anything wrong. If someone decides to sue you, they can do it. That’s why it’s so important to have comprehensive business insurance, so your insurance company will pay for your legal fees whether you win or lose. But insurance cannot protect you from every situation. There is always the possibility that your business could lose a lawsuit and it could cost you big.
One of the main reasons business owners form LLCs is to protect themselves from unexpected risks to their personal assets. As an LLC, you can maintain the corporate veil – the separation between your business assets and your personal assets. But forming an LLC is not enough on its own. If the court finds that your business and personal finances are mixed up, like if you use a personal account for business transactions, then your personal assets could still be at risk.
Using a business account for all business financial transactions is one of the most important steps you can take to avoid personal liability. As long as you use your business account it will be difficult or impossible for the court to go after your personal assets.
2. Keep Your Taxes Clean And Tidy
Accounting is not always easy – in fact, it is usually a pain and is something that many business owners pay professionals to take care of. But you can make accounting much easier by using a business account for all your financial transactions. When you use your business account to make all of your purchases and receive all of your business income, it becomes simpler to do your taxes. You can find all of your business expenses during tax time so you can deduct them and lower your tax burden. Figuring out what expenses are business and what are personal becomes much more of a pain when you are using a personal account.
There is always the chance that the IRS could audit your business as well. If you are audited, you are going to have a tough time justifying your deductions if you commingle your personal and business expenses. But if you have used a business account for your business expenses, it will be simpler to point to what expenses were for the business and justify them as deductions.
3. Look More Professional
Image is extremely important in the business world. You want your company to look legitimate to customers, clients, employees, lenders and anyone else you do business with. Having a business bank account helps bolster your professional appearance. When you write checks, instead of using checks with your personal name and address on them, you can use checks that have your business name and business address. And it’s not just about looking good – sometimes you will not be able to pay for services and goods using a personal check. There are vendors who require the use of business checks or you have to use a certified bank check, which is a hassle.
4. Gain Access To Financing And Investment
You are going to want financing and investment at some point to expand or bolster your business. But if all you have is a personal checking account, it can make it more difficult to access such financial opportunities. For example, you might not be able to get a business loan from your bank unless you have an established business account. Or, if you go to another lender to ask for a loan, they may not give you access to business loans unless you have a business banking account. Instead, you will have to settle for personal loans – which tend to be much smaller and less business-friendly.
You also need a business account to be able to accept credit card payments and debit card payments. If you want to be able to sell products in today’s world, you need to be able to take credit card and debit card payments.
5. Simplifying Your Financial Life
It may seem unlikely that opening and maintaining more bank accounts would make your life easier, but as an entrepreneur, it definitely will. While you may have to go to seem extra trouble to open the account and to learn to use it as a business person would, the initial hard work will pay significant dividends later on.
At first, you will have to think before you make purchases and decide whether they can be made with your business account or your personal account. But eventually, you will have no trouble making these decisions. They will become automatic. Just by making these choices each time you pay, you are cleaning up the clutter that can make tax time so difficult.
Each time taxes come around, you will experience less stress and worry because you already have everything organized. Your accounting software will quickly process your business bank account records to help you find deductions and do your taxes.
It only takes a little time to get into the swing of using a business bank account and the benefits you get from doing so will be considerable. So, if you haven’t already, open a business account and get started on the path to a simpler financial life as an entrepreneur.
