How to answer, “Do I need a business bank account?”
Tons of business advice is doled out to new and small business owners: Never go into business with family, dream small, dream big, separate your finances. While some business advice can be nonsense, one piece of advice that's absolutely worth following is the separation of personal and professional finances. You might be thinking, "Come on, do I need a business bank account?"
Well, yes. But first, let's take a look at what a business account is, how it differs from a personal account, and most importantly, why you need a business bank account.
What is a business bank account?
A business banking account is a bank account that's specifically for business finances, making it easier for business owners to separate their personal and business income. Beyond this, business accounts generally have perks that come with them, including:
- Fewer fees: Many business checking accounts come with fewer service fees than personal accounts. For example, a business checking account may have lower monthly fees than premiere personal accounts or reduced transaction fees.
- Better interest rates: Some business accounts, even business checking accounts, will gain interest. Not only this, business accounts can, in some cases, have better interest rates than personal accounts.
- Secured business credit cards: As a business owner, you likely make a number of purchases with various vendors. It's also possible you travel for work. In either event, a business credit card keeps your personal finances safe from any kind of security breach.
- Legal protection: A separate bank account helps protect your personal assets from legal suits. This liability protection is essentially an added layer of security if you're already organized as a limited liability company (LLC) or other type of corporation.
Think of a business bank account as an extension of your business structure. Anytime you're doing business, you're using your business bank account. Anytime you're off the clock, you're logging personal expenses. A business bank account simplifies your personal finances, through and through.
Do you need a business bank account?
A business bank account comes with a number of perks. But, do you need one? Yes. If you have a business you should have a business bank account.
However, if that's not enough to convince you, there are a number of reasons to have a business account. You can use your business account to:
- Separate finances: A separate business bank account makes you less likely to commingle your personal funds and business finances. This makes it easier to keep an eye on your business account balance, which is helpful for managing money and filing taxes.
- Appear more professional: You know you're a professional, but a separate business account lets others know how professional you are. For example, with a business account, your invoices and checks won't have your personal information on them — they'll have your business information. You're doing business as your business, not yourself.
- Face fewer limits: Personal accounts can come with a number of limitations, including transfer or transaction limits. Business accounts often have no limits, freeing you up to do as much business as you'd like.
- Improve cash flow: Separating your finances makes it easier to keep an eye on your business cash flow. Not only this, but a separate business savings account also makes it easier to set money aside for your business as well. This can help you prepare for the unexpected, and again, boost your overall cash flow.
- Get free ACH transfers: Many business bank accounts allow free automated clearing house, or ACH, transfers. An ACH transfer is a transfer from one bank to another, which can be useful for internal finances, as well as business dealings.
- Keep cleaner books: A business bank account is great for both tax purposes and in-house accounting. When your business funds are separate from your personal finances, it's easier to keep your books organized and clean. This makes life easier for your bookkeeper and makes things easier during tax season. A separate account makes it easy for your bookkeeper to print out any business transactions without having to parse through personal transactions, saving your bookkeeper time and saving you money.
- Accept credit or debit cards: A cash-only business can drive away a lot of potential customers. You'll have an easier time setting up credit card payments when you have a business bank account, making it possible for customers to use their debit or credit cards at your business. This saves them a trip to the ATM, and more importantly, keeps them from walking away altogether.
- Build business credit: A business bank account makes it easier to establish a credit history for your business. This opens the doors to business loans, which can help any type of business down the road. Most businesses run into large business expenses, during which time a loan can be a lifesaver. A business account prepares you for that moment before it arrives.
The list of business bank account perks goes on and on. It's possible your business may not need one, but it's still in your best interest to seek out a business account as easily as possible.
Opening a business bank account
Are you sold on the idea of a business bank account? Great! Now, it's time to learn about opening one. The process can be fairly straightforward, but there are a few things you can do ahead of time to give yourself a better experience.
- Do your research: Don't open an account with the first bank you look at. Do extensive research, both online and locally, to see which banks offer the most competitive interest rates, the lowest fees, and the best service. Ideally, you want a bank with a location near yours, just in case you need to go in for any kind of financial advice or loans.
- Bring the right information: Depending on the type of business you run, you may need different documents to open a business bank account. It's a good idea to bring your ID, social security card, and business license. Beyond that, you may need to bring employer identification numbers for any partners, articles of incorporation, or articles of organization.
- Ask questions: Banks are generally pretty good at advertising introductory offers, but it's never a bad idea to ask about offers for new accounts. Also, ask your banker all the questions you need to feel comfortable with your account terms. If you have a financial advisor or accountant, or a friend who specializes in these things, try to bring them along.
- Don't be afraid to switch: It's entirely possible you realize, after opening a bank account, you're not happy with the bank. Or, maybe you find an even better bank some time after opening your first account. Ultimately you need a bank that works well with your business, and account terms that align with your business goals.
Set aside time to research your business bank account. With a little prep and your goals in mind, you'll be well on your way to finding the right bank for your business.
Cash management accounts: A growing alternative
A cash management account (CMA) is an alternative to traditional savings, checking, and investment accounts. A CMA combines all three account types into one package, offering the ability to gain interest, set aside money, and use a line of credit.
For businesses interested in simplifying their finances, a CMA allows you to keep all your money in one place, gain some interest, and take advantage of many credit features. For example, with Brex Cash, you can grow your money with industry-leading yields while having the features of the Brex business credit card.
Banking on a business account
Your business will grow over time, your needs and goals changing along with it. While you may not need a business bank account right now, you likely will down the road. Do some research and open a business account sooner rather than later, and your business will likely benefit as a result.
There's little reason not to open a business account but a lot of reasons to open one. If you have a financial advisor or business partner, speak with them about opening an account as soon as possible. The right bank will be a partner in your company's growth, helping you along the way. And that's something you can take all the way to the bank.