When you’re starting a business, there’s a lot to think about. Do you really need to open a separate business bank account? At first glance, using your personal account might seem easier. Fewer accounts to manage, fewer fees to pay, fewer perks to keep track of. What’s the harm, right? But as you dig deeper, it becomes clear that having an actual business bank account offers benefits that go beyond just having a place to store your business cash. There are some drawbacks, but they pale in comparison to the advantages.

Who needs a business bank account?

The short answer: almost anyone who’s running a business. Whether you’re a freelancer, sole proprietor, or the owner of an LLC or corporation, having a business account can make your life easier. If your business is anything more than a casual side gig, you’ll want that separation. For a more detailed guide on how to keep your finances separate, check out this article.

Here’s why:

• LLCs and corporations: These businesses are legally separate entities, meaning their finances should be kept apart from the owner’s personal accounts. Failing to do so could blur the lines between your personal and business liabilities.
• Freelancers and sole proprietors: Even though you might not have to separate your finances legally, it’s still a smart idea. A business bank account simplifies taxes and bookkeeping, and it looks more professional when you’re sending out invoices or paying suppliers.
• Other businesses with employees or partners: If you need to manage payroll, write checks, or have more than one person with access to the account, a business bank account is crucial.

Types of business bank accounts to consider

When it comes to business banking, you’re not limited to just a checking account. There are several types of accounts that might suit your needs depending on the nature of your business. Here’s a quick rundown:

Business checking account

This is your everyday account. It’s where money comes in from clients and goes out for expenses, like bills or paying vendors. A business checking account gives you the flexibility to handle all your basic transactions while keeping your personal and business finances separate. Many accounts offer integration with QuickBooks and other tools to streamline bookkeeping.

Business savings account

If you’re smart about setting aside funds for emergencies, taxes, or future investments, a business savings account will help you grow that cash. It’s also an easy way to build a buffer in case of unexpected expenses.

Merchant services account

If your business accepts credit card payments, you’ll need a merchant services account. It’s a special type of account that allows you to process card payments, which then get transferred into your business checking account. For more on managing payroll and related services, check out this guide on what a payroll account is.

How does a business checking account work?

A business checking account functions a lot like your personal one. You can deposit money, write checks, make electronic transfers, and withdraw cash. The difference is that it’s tailored for business needs. For example, business accounts often have higher transaction limits and offer features like:

• Multiple signers: If you have employees or partners, they can have access to the account, with permissions set by you.
• Integration with accounting software: Many business accounts sync directly with accounting tools like QuickBooks or Xero, saving you a ton of time on bookkeeping.
• Merchant services: Some business checking accounts come with payment processing solutions, making it easier to accept payments from customers.

The biggest perk, though, is the clear separation between your personal and business finances. That’s going to save you a lot of headaches when tax season rolls around.

Business checking account vs. personal checking account

If you’re still wondering whether you really need a business account, let’s compare it to a personal checking account.

Personal checking account

• Meant for personal day-to-day expenses like rent, groceries, and Netflix subscriptions.
• Typically has lower fees and fewer features.
• No real need for detailed tracking or reporting.

Business checking account

• Designed for managing business income and expenses.
• Offers features like multiple signers, higher transaction limits, and integrations with business tools.
• Necessary for protecting your legal structure if you run an LLC or corporation.
• Helps you build business credit.

Bottom line: A business checking account is built to handle the complexities of running a business, whereas a personal checking account is not.

Benefits of a business bank account

Having a business bank account isn’t just a formality; it offers real benefits that can make a huge difference in how you manage your business.

1. Simplifies taxes
   All your business income and expenses are in one place, making it easy to track everything. Come tax time, you (or your accountant) won’t need to sift through a mess of personal transactions to find business-related expenses.

2. Establishes professionalism
   Clients, vendors, and partners will take you more seriously when you pay them from a business account rather than your personal one. It shows that you’re running a legitimate operation, not just a hobby.

3. Helps build business credit
   Having a business bank account is one of the first steps toward building business credit. This can come in handy if you ever need to apply for a loan or line of credit.

4. Legal protection
   If you’re running an LLC or corporation, keeping your business and personal finances separate is crucial for protecting your personal assets from legal issues.

Drawbacks of a business bank account

Of course, there are a few downsides to consider:

1. Fees
   Most business accounts come with monthly maintenance fees or transaction fees. However, many banks will waive these if you meet certain requirements, like maintaining a minimum balance.

2. Requirements
   To open a business account, you’ll need to provide paperwork like your business registration, tax ID, and possibly other documents, depending on your bank’s requirements. It’s not difficult, but it does require some effort.

3. More accounts to manage
   Some people prefer to keep things as simple as possible. Opening a business account adds one more thing to keep track of, but in the long run, it simplifies your life.

How to choose a bank for your business account

When you’re ready to open a business account, here are a few things to consider:

1. Fees

Look out for fees. These could include monthly maintenance fees, transaction fees, or fees for deposits and withdrawals. Some banks offer free business checking if you meet certain criteria, like maintaining a minimum balance.

2. Location

Do you need to go into a physical branch, or do you prefer handling everything online? Some banks offer excellent online business accounts, while others focus on in-person services.

3. Features

Make sure the account offers what you need. Do you need payroll services, credit card processing, or integration with accounting software? Different banks offer different perks, so compare and see what works best for your business.

4. Minimum balance

Many business accounts require you to maintain a minimum balance to avoid fees. If you’re just starting out, you might want to look for an account with low or no minimum balance requirements.

Frequently asked questions

1. Can I use a personal bank account for my business?

Technically, yes, you can. But mixing personal and business finances can lead to legal issues, bookkeeping headaches, and tax implications. It’s best to keep them separate with a business bank account.

2. What are the disadvantages of a business bank account?

The main drawbacks are fees and extra paperwork. Business accounts often come with monthly maintenance fees, and you’ll need to provide documentation like your business registration or tax ID when opening an account. But the benefits far outweigh these minor inconveniences.

3. What happens if you don’t have a business bank account?

If you don’t have a business bank account, you risk jumbled finances, more complicated taxes, and potential legal trouble if you’re operating as an LLC or corporation. Keeping your personal and business finances separate is essential for protecting your personal assets and maintaining clear financial records.

This article was reviewed by our banking expert Tricia Jones.