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Business Banking For Small Business Owners: Why A Separate Account Can Help You Build Your Business

March 29, 2021

As a small business owner, do you mix personal transactions and business transactions? It is a common issue; one survey found that more than one-quarter of small businesses say they co-mingle finances. And it’s easy to see why; given the wide range of priorities a small business owner oversees every day, using a bank account that’s already set up often seems like the easiest and most logical choice.

It can also happen organically as your side business gains steam and becomes your main business; many owners conduct business the way they always have, even as their organization grows and has new needs.

So while it might seem simpler to only manage one account, that’s probably not actually the case. Here are five reasons you should consider separating your business account from your personal account.

1. A business account simplifies bookkeeping and taxes.

Where you see the ease of just having one set of records, your accountant sees a web of confusion as they try to sort out which transaction are personal and which are business-related. Not only does it make it harder to get a valuation on your business and track cash flow, but it can cause difficulty when you are determining what items might be tax-deductible.

That’s because it can be challenging to decipher exactly which expenses are your business vs. personal. For example, a payment to the office supply store could be a new printer for your business or a new laptop for your virtual student. This confusion means you could miss deductions you should be taking—or worse, it would be difficult to separate transaction if you were to get audited. Separate accounts mean you have a clear trail for all your expenses.

2. A business banking account offers you access to more features.

Personal accounts are typically pretty simplified, while business accounts are designed to provide various business functions and therefore offer more choices. For example, you’ll have more flexible cash withdrawal limits, transaction limits and fees, compared to a personal account. You will also have access to the support of a business banker, who can help advise you on a wide variety of business issues, from loans to a variety of merchant services.

3. A business banking account makes you look more professional.

A business bank account legitimizes your organization on both sides of the transaction. Your customers will appreciate the ability to use a credit card for payment, and those from whom you’re buying goods or services will prefer the fact that you have a business name, not a personal one, on your checks and cards. It helps build trust in you and your company.

4. A business bank might be necessary for your company structure.

If you have incorporated your business as a partnership, corporation or even an “incorporated” sole proprietorship, the IRS requires that you have a separate business account. These company structures can be advantageous for tax reasons; however, it is always wise to talk to an accountant about benefits and potential disadvantages when making any move for tax purposes.

Even if you remain a “sole proprietorship,” which doesn’t legally need a business account, it still can be important for other reasons. In particular, the IRS has guidelines for determining whether your venture is a “business” or “hobby” for tax purposes. The first item on its list of nine distinguishing factors is “whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.”

5. A business account helps you prepare for future growth.

When funds are co-mingled it can be hard to get a handle on your cash flow, both how much is coming in due to your business rather than income from other sources—like your spouse’s salary—as well as what’s going out. Most entrepreneurs find that keeping a watchful eye on expenses is one of the best ways to successfully help the business grow, but without a separate account, it’s nearly impossible to know what expenses are for what part of your life.

With a clear summary at the end of every month, you’re able to identify areas you can cut or places you might be able to realize additional opportunities through new investments or an infusion of cash, such as expanding a promising product line with a bank loan.

Is a business account right for you?

Whether your main goal is to sort out your finances, streamline your bookkeeping or build your credibility, a business bank account can play an important role.

Want to find out more about how a business account can help you achieve your goals? Contact Valley Strong Credit Union today to talk with a specialized business banker about the benefits of opening a business account.