Running your own business is a huge undertaking. Having multiple bank accounts at different banks is confusing. Personal and business finances are very different. You may wonder should you keep your business and personal accounts at the same bank? Maybe you should consider separating your business and personal finances. By separating your personal and business accounts can help you run your business smoothly and answer questions about separating personal and business banking.
Differences Between a Personal and Business Bank Account
Small business owners require a business account to keep track of larger volumes of deposits and transactions. Business bank accounts have larger sums of money. Personal bank accounts have lower transactions and commonly use ATMs. There are specific accounts designed to support the business owner and assist with tracking. At some Banks, one main difference with an account for your small business is that you are charged for cash deposits.
Why Should You Separate Personal & Business Bank Accounts?
Separating your account from your business account assists in keeping track of finances. You do not need to worry about missing a personal reimbursement if your accounts are separate. Legal protection is available for business bank accounts. When you complete your taxes, you are required to provide accurate banking records. Most banks have a small fee based on your monthly deposits.
Can You Use the Same Bank for Personal & Business?
You should not use the same bank account for personal and business expenses and transactions, but you may want to consider using the same bank. There are some advantages to using the same bank for your personal finance and business finance.
You can transfer funds without excessive charges when your bank accounts are located in the same bank. Transfers happen quicker, which saves you, the business owner, plenty of important time.
Free Personal Checking
Many banks offer free personal checking with small business accounts. It will now cost you more money, the more transactions you make. This advantage saves you money on unnecessary bank fees.
When both accounts are in the same bank, it is easier to borrow money from your personal and business accounts. A small business loan might be the perfect option for you if you are looking to borrow money.
Build Relationships and Trust
The more accounts you have with one bank, the more they trust you. By opening multiple credit card accounts, checking, and savings accounts, the bank is able to see that you manage your money well. When you manage money well, you are known as a safe credit risk. This means they will lend you more money.
As a business owner, you know the importance of a higher credit balance, and with multiple accounts that are well maintained, your credit score will increase. You qualify for lower interest rates and receive free banking services.
When you pay for things like lunch and travel for your business, it is easier to complete your business accounting. If your bank account is at the same bank, it is easier to track these expenses and reimburse yourself.
Who wants to visit the bank every time they need an automatic transfer? Most business owners do not have the time for silly trips like this. Arrange automatic bank transfers from your business account to your account with the click of a button. This reduces bank fees and frees up your time.
Why not to Use Personal Funds for Business Expenses
Personal funds should be separate from business expenses because it is difficult to differentiate between the transactions. You want to manage your money properly. You may lose track of transactions, losing your business money. Make business transfers and deposits crystal clear by only allowing them to come from separate accounts.
When owning a small business, it is important to clearly understand rules from the Federal Deposit Insurance Corporation. The FDIC has strict rules and category definitions if one owner has multiple accounts. Insurance of up to $250,000 will be covered only if a single owner with the same name has sole proprietorship. If the owner is either an association or is incorporated and the business bank account is in a separate category, insurance coverage changes.
When the small business owner has sole proprietorship of the business, personal and checking accounts should be at different banks. When both the business and personal bank accounts are separate, the FDIC will ensure coverage on all deposits. If the total sum of both bank accounts exceeds $250,000, you should keep your bank accounts at different banks to ensure this coverage.
What's Required for a Business Bank Account
Business accounts are similar to personal accounts but provide you with a checkbook for business expenses. When opening a business bank account, this account allows for seamless transfers and deposits. This will enable you to separate your finances and business finances. Shop around and see what deals other banks offer you.
When opening a business bank account, you are required to submit:
- Social Security Number
- Business Tax Identification Number
- Business License
- Business details such as name, address, and contact information
- Income statements
- The Employer Identification Number (EIN)
If you are opening a business account as a limited partnership, you need:
- Business Tax Identification Number
- Limited Partnership Agreement
- Certificate of Limited Partnership with the business name and partners name
Questions to Ask:
Can I use my personal bank for business expenses?
Small business owners write off expenses for your business. When you use a personal account, you are not able to claim these expenses. When filing tax returns, it is easier to have separate accounts.
Where should I open a business bank account for my small business?
Local banks are the best for small business owners. You build relationships the more you get to know the bank. Online options are also available. Online advisors are always available to help you find what you need.
About the Author, James Webster
James Webster, founder and CEO of ROK Financial has almost two decades of experience within the financial services industry. His passion for helping small business owners and his innovative way of thinking, has allowed him to run multiple successful businesses including National Business Capital & Services. Under the National name, the team was able to help secure over $1 Billion in financing for small businesses nationwide.