As a new small business owner, you have many tasks to handle. As your business grows, so do your responsibilities and profits. Before diving in, there are a few key things you need to grasp.
These include branding, establishing a legal structure, and obtaining licenses like resale certificates, EIN, ITIN, DUNS, and lease agreements. It’s also important to secure an office—whether physical or virtual—and hire staff. However, many entrepreneurs overlook the crucial step of setting up a business checking account.
A business checking account is highly recommended by the business strategist, not just because it ensures your business funds have a separate identity but also because it keeps your personal finances safe and secure.
As today’s concept is: Business Checking Account vs. Personal Checking Account, let’s learn the differences just to be on the safe side. Then, don’t let laziness stop you—set up a business checking account without wasting any time!
Business Checking Account
A Business Checking Account is designed specifically for managing your business finances. It helps keep your business expenses separate from personal ones, making bookkeeping easier and providing a clear picture of your company’s financial health. Plus, it often comes with features tailored to business needs, like multiple-user access and integration with accounting software.
Personal Checking Account
A Personal Checking Account is meant for your everyday personal expenses, like groceries, utilities, and leisure activities. It allows you to deposit and withdraw money, write checks, and use a debit card. This account is best for managing your personal budget and keeping track of your individual spending.
The Difference Between a Business and a Personal Bank Account
Now about the main concept: Business Checking Account vs. Personal Checking Account.
Before diving deep, let’s consider the functions of these two bank accounts and the fundamental differences between them.
Well, at first glance, you might find these two pretty similar. Both of them function almost the same as far as making deposits, withdrawing money, making draft checks, purchases, or use of a debit card is concerned. Similarly, both have overdraft protection on offer and feature online banking.
There goes the basic similarity. Now let’s quickly talk about the key difference between them.
Employee Debit Cards
A key difference between business checking accounts and personal checking accounts is the ability to order debit cards for employees. Most business checking accounts allow you to issue debit cards to your employees, enabling them to make purchases and transactions on behalf of the business.
These cards come with features that allow you to set individual spending limits, ensuring that employees can only access the funds they need and preventing any unauthorized withdrawals. Personal checking accounts, on the other hand, do not offer this level of control and access for multiple users.
Monthly Fees and Balance Requirements
This is another key differentiating factor in the concept of the “business checking account vs. personal checking account.” A personal bank account doesn’t require any monthly fees or any minimum balance requirements. On the other hand, business bank accounts have monthly fees and a minimum balance requirement typically.
However, there are a lot of business checking bank accounts that come with additional offers of no balance requirements in cases as low as only 5$ per month. Also, you can avoid monthly fees if you are capable of making a good number of transactions using the account.
The Process of Setting up Accounts
As the business checking account deals with other parties on your behalf, this comes with additional responsibilities. This is why it requires a little bit more paperwork than any personal bank account.
You might need to provide the validity of your business license, your Individual Taxpayer Identification Number (ITIN), your employees’ EIN or SSN, and other legal documents of your business to set up the business bank account. Though it might sound hard in the end it’ll surely bring fortune for you.
Why Should You Use a Business Checking Account in Place of a Personal Checking Account for Your Business?
Thinking about why the names of these bank accounts matter? It’s simple—they’re designed for different purposes. But beyond names, let’s get to the facts.
You need practical reasons to choose a business checking account over a personal one for your business. Here are some compelling reasons and basic requirements to consider, to ensure you make the best choice for your business needs.
Safety of Personal Funds
Besides any other legal benefits, the safety of personal funds is the basic aim of opening a business checking bank account. You don’t want to risk your personal funds being merged with your business income, do you? We bet you don’t.
You may remain completely unaware of the fact that behind the door you are losing your personal assets while paying your people. This might not be identified immediately and you’ll have to scratch your head at the end of the month. So, it is better to use two separate accounts for safe banking.
Legal Benefit
Say, you are operating your business under an LLC or a corporation. This means that your business has a separate entity and is completely separate from you. Having said that, you are now legally required to separate your business’s finances from your personal funds.
This is the time when you need to set up a business checking account as many banks require a business bank account when you are acting as an LLC or an independent business corporation. Besides, your personal bank account might get suspended if you use it for business purposes.
However, if you are a sole proprietor, you don’t need to make a transition using a business checking bank account. But if you think from a professional standpoint, it’ll surely boost you up and help you overcome any legal trial that you might face.
Precise and Easy Bookkeeping
It’s a matter of annoyance if you end up combining your business and personal transactions into a single bank account. You or your accountant will need a bigger portion of work hours for merely sorting them out as you need to identify business incomings to pay your taxes at the end of the year.
Audit Implications
Don’t forget that the account that goes with your business could be audited from time to time by the government. Unfortunately, they won’t consider your personal activities on the account as personal anymore and it may end up bringing misfortune for you as you need to answer about the transactions.
Business Vs. Hobby
Well, business means professionalism. When you use your personal bank account for business purposes, it only proves that you are either taking your business as a hobby or not putting enough effort into it. So, better prove that you are running a legitimate business to earn some faith.
Build Your Professional Business Brand
A business checking bank account is a sign that you are not just doing business but also on your way to building a professional brand. Having a professional bank account will promote the name of your business as you need to write checks to buy inventory for your business.
Also, it looks quite odd to use a personal bank account to make transactions for your business. On the other hand, your clients will feel insecure if they see someone else’s name in the bank account instead of the name of the business itself.
Credit Card Payments
Sometimes you might need to accept payments from clients through credit cards. This feature actually doesn’t come with a personal bank account unless you add extra features to it, which is quite expensive. So, a business bank checking account can easily solve the case for you.
Secured Encryption Ensures Inner Peace
After a long day at work, everyone deserves a good sleep. But, the lack of a secured business checking bank account can cause your inner peace to fade away. Because your business requires a large number of transactions, it needs to be equipped with secure encryption.
Since business checking bank accounts come with a higher security system than any personal bank account, the chance of a successful fraudulent attack is minimized. So, a business bank account can ensure the safety of your valuable earnings.
A Friendly Hand
Your business won’t be stuck in the same periphery. Gradually it will grow bigger. Since a dedicated business checking bank account helps your business to create a strong relationship with financial organizations, it opens the door for any incoming investment.
Besides, it gets easier for you to apply for any loans once you possess a well-established business bank account. On top of that, you can easily access other services related to business from third-party organizations to grow your business faster.
Do You Need to Make a Profit to Open a Business Checking Account?
No, you do not need to prove that your business is earning money to open a business checking account. The bank doesn’t care about your profit or loss from the business. All you need to do is provide some legal documents to validate your business’s identity.
Opening an independent business checking account is actually regarded as the first move for a business, even before starting any sales or financial transactions. This account will be the platform you use to transfer funds between parties.
Keep in mind that some small business checking accounts might require a minimum opening deposit. However, they won’t investigate where that money comes from. You can also choose alternative banks that require no opening deposits at all.
Final Words
When it comes to Business Checking Account Vs. Personal Checking Account, a business checking account offers clear advantages. It helps separate your personal and business expenses, provides employee debit cards, and offers enhanced security.
Choosing the right account can make a huge difference in how smoothly your business runs. Mixing personal and business funds can create unnecessary complications and risks.
Setting up a dedicated business checking account is essential for staying organized and positioning your business for growth and success. Ready to make the switch? Start exploring your options today!
