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Managing Your Business

Do I Need a Business Bank Account?

October 25, 2022 5 min. read
Academy / Do I Need a Business Bank Account?

Short answer—yes. A small business bank account helps you look professional, keep your financials organized, and avoid logistical headaches and financial trouble down the road.

Long answer—here’s everything you need to know about business checking and savings accounts.

What is a business bank account?

A business bank account is an account used only for business transactions. It keeps personal expenses and income (like groceries and paychecks) separate from business ones.

Here are a few examples of transactions you might make with a small business checking account:

What’s the difference between a personal and business checking account?

There are several important differences between personal and business bank accounts:

Business Bank AccountPersonal Bank Account
Intended UseBusiness banking transactionsPersonal banking transactions
Registered UnderBusiness name (accepts payments made out to business)Personal name (can only accept payments made out to you)
SetupLonger setup process that requires more documentationEasy to set up in person or online
Monthly FeeGenerally highLow or free
Interest RatesLowLow to high
PerksDepends on the bank—some offer multiple cards or merchant accountsFewer perks than business accounts

FREE TOOL: Keep your business profitable with our free profit margin calculator

Other than these differences, a small business checking account operates the same way as a personal checking account. You can check your account balance and make withdrawals, deposits, and bank transfers.

Why do you need a business bank account?

A separate business bank account is worth the effort, even though it can cost more in fees and will take longer to set up. Here’s why you need a business checking account:

1. Look professional and legitimate

First impressions are important as a small business owner when you’re trying to find and keep new customers. Making and taking payments from a business account helps clients and vendors see you as a professional.

FREE TOOL: Invoice faster with our free invoice template

2. Keep your business finances organized

Separating your personal and business accounts makes more organized bookkeeping—no more sifting through transactions to find the ones that apply to your business.

This also creates transparency if your small business is a partnership. Having a clear picture of cash flow will reduce risk and give all partners a good view of how the business is doing.

READ MORE: 8 ways to improve cash flow for your small business

3. Build a credit profile for your business

A separate business checking account helps you build up a business credit score. This in turn allows you to get a small business loan or line of credit to cover expenses during tough times, or to help you scale your business faster.

4. Be prepared for tax season

You (or your accountant) will spend much less time sorting through personal and business transactions at tax time if they’re already separate. Running all business transactions through one account will help with that.

This also makes it easier to claim business expenses, reduce your taxable business income, and pay less income tax.

READ MORE: Tax preparation for your service business

5. Protect your personal assets

Liability protection keeps your personal assets safe from creditors if your business is sued or declares bankruptcy. However, this only works if you keep your business and personal funds separate.

Who needs a business bank account?

If you run a company, you need a separate business bank account—it doesn’t matter whether you’re running it as a sole proprietor, partnership, or limited liability company (LLC).

That said, it’s even more important to have a separate business account as an LLC. This type of business structure limits personal liability, so you must have a separate account to protect your personal assets.

It also doesn’t matter if you’re running a small business full time or as a side hustle. A business is a business, and it needs a bank account no matter what.

FREE TOOL: Send professional-looking quotes with our free estimate template

When should I get a business bank account?

If you’re just starting a business, set up your checking account right after you’ve registered the business. This separate account should be in place long before you receive your first client payment.

If your small business is established and doesn’t already have a bank account, set it up right now. You’ll thank yourself when the next tax season rolls around.

READ MORE: Online or offline payment: which method is best for your small business?

What to look for in a business bank account

The hardest part of opening a business bank account is choosing your bank. Find one that offers solid benefits for a fair fee—even if it isn’t at the same bank as your personal account.

Ask these questions when you’re doing your research or talking to the bank:

  • What are the perks? Different banks offer different perks for account owners. For example, signing up for a particular kind of account might earn you reduced service rates, free checkbooks, member points on purchases, or other benefits.
  • What fees are involved? Identify any per-transaction, early termination, monthly account, or minimum balance fees.
  • What are your interest rates? Find out specific interest rates for a checking or savings account, as well as any business credit cards or lines of credit.
  • Is there an introductory offer? Some banks will offer a sign-up incentive, like a free item. It’s smart to take advantage, but make sure the offer doesn’t mask higher fees or other limitations.
  • What are the terms and conditions? Every account comes with conditions for using it, like transaction limits or requirements for cash deposits. Read the terms and conditions carefully to make sure you understand what you’re getting into.

Bring your employer identification number (EIN), business license, and formation documents to open your small business bank account. If you’re a sole provider, bring your social security number (SSN), too.

Pro Tip: Consider getting a business credit card to help with cash flow and business expenses.

READ MORE: Are you tracking business expenses the right way?

A business bank account makes your business look more professional—and life much easier at tax time. There’s some up-front work involved, but the benefits make it worth the time and effort.

Originally published August 2020. Last updated on October 25, 2022.

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