Learn the leading business finance tips that will grow your business and help you succeed…
When you're starting a small business, there are a lot of important decisions to make. One of the most commonly asked questions by entrepreneurs and small businesses is, "do I need a business bank account?"
Even if you own an LLC or sole proprietorship, setting up a separate bank account for your business is one of the best ways to protect your business and personal assets.
Why a Business Bank Account Matters
Having a separate business bank account helps you keep track of your business expenses. When you have a business bank account, you can easily see how much money is coming in and going out. This makes it easier to budget and forecast for the future.
If you commingle your personal and business finances, it can be difficult to track expenses and manage your cash flow. A business bank account also provides documentation of your income and expenses, which is important come tax time.
Additionally, if you ever need to apply for a loan or line of credit, lenders will usually require documentation that shows you have a business bank account. This is because they want to see that you're serious about your business and that you're organized.
Benefits of a Business Bank Account
More Accurate Bookkeeping
Separating your personal and business bank accounts will help you keep track of your actual expenses and profits associated with your business. This is important for both legal and tax purposes.
Personal Identity Protection
When you open up a business bank account, you'll need to provide an Employer Identification Number (EIN) rather than your Social Security Number (SSN). If your business accounts were to get hacked, the hacker would not have access to your personal information.
Increases Business Loan Approval Rate
When you go to apply for a business loan, the lender will want to see that you have a business bank account. This is one way they can verify that your business is legitimate and that you're organized.
Pitfalls of Not Having a Business Bank Account
Now that we've answered the question, "do I need a business bank account," let's talk about what can happen if you don't have one.
If you commingle your personal and business finances, it can become difficult to manage your cash flow and track your expenses. This can lead to problems within your business in terms of equity, growth, and when filing your taxes.
Increased Risk of an IRS Audit
When the IRS audits your tax return, they will request documentation to support your income and expenses. If you don't have a business bank account, it can be difficult to provide this documentation. This could lead to problems with the IRS and potentially result in penalties.
Difficulty with Business Loan Approval
Additionally, if you ever need to apply for a business loan or line of credit, most lenders will require documentation that shows you have a business bank account. Without this, it can be difficult to get the financing you need to grow your business.
So, while there's no law that says you need a business bank account, it's definitely in your best interest to have one. It will help you stay organized, track your expenses, and grow your business.
Do I Need a Business Savings or Checking Account?
The difference between a business savings account and a business checking account is the same as a personal checking account and a personal savings account. If you're wondering which type of business account you need, the answer is that it depends.
If you have enough cash flow to open a business savings account, then this type of business account will help you build up your cash reserves and eventually grow your business. If you only have enough to open a business checking account, then start there and open a business account for savings when you are able.
Business Savings Accounts
A business savings account is a great way to grow your business's cash reserves. You can use this account to set aside money for taxes, unexpected expenses, or future growth.
Before you open a business savings account, make sure you're choosing a trusted bank.
Business Checking Accounts
A business checking account is best for everyday business transactions like paying bills, receiving payments from customers, and transferring money to cover expenses. Your business checking account will come with a debit card that you can use to make purchases.
Just like with a business savings account, it's important to choose a reputable bank for your business checking account. This will ensure that your money is safe and that you have access to the features and services you need.
Talk to a Financial Advisor
When it comes to managing your business finances, it's always a good idea to speak with a financial advisor. They can help you understand the different options available and make recommendations based on your specific needs.
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