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Do you ever think , "Do I need a separate bank account for my business?" Find out here.

Do I Need a Separate Bank Account for My Business?

As a small business owner, you and your business’s finances might be connected. In fact, most small business owners use their personal savings to initially fund their companies. If your business and personal funds cross paths, consider the question, “Do I need a separate bank account for my business?”

Many financial professionals would advise you to use a separate business bank account. A separate bank account for business helps you maintain accounting records.

Combining personal and business funds: Is it legal?

Some businesses legally have to separate business and personal funds. If your company is a separate legal entity, business funds must be in a separate bank account.

You need a bank account for your business if you operate under a DBA name. What is a DBA? A DBA name is a company’s “doing business as” name. When you use a DBA, you register a different business name from your own name.

Sole proprietors and partnerships often need to file DBAs. Under these types of business structures, the legal name of the company is automatically your name. For example, if Joe starts a catering company and wants to call it Joe’s Catering, he would need to register a DBA.

You also need a separate business bank account if you operate as an LLC or a corporation. LLCs and corporations are separate entities from the owners.

Sole proprietorships and partnerships without DBAs are not legally required to have a business bank account.

Why should I use a business bank account?

Even if you are not required to use a business bank account, you may want to consider separating the funds. Using one bank account for business and personal finances can get confusing.

If you don’t separate business and personal funds, you might experience these issues:

  • Disorganized accounting records
  • Inaccurate tax filings
  • Overspending
  • Missed opportunities for growth

When you use a bank account strictly for business, your bank statement can be a useful tool. The business account statement helps you track your company’s income and expenses. You can use a business bank statement to reconcile your books, track profitability, and project your cash flow.

If personal funds are in the same bank account, it may be hard to measure your business’s performance. You must go through the statement, line by line, to separate business and personal transactions by hand. A business bank account can save you time when it comes to organizing your finances, and creating an income statement.

How do I get a business bank account?

Getting a business checking account can be simple. Many banks offer free or low cost business checking accounts.

The types of business bank accounts vary. Consider how many monthly transactions you will make, the lowest balance amount you expect to have, and the bank fees you can afford. Review all your options before opening a business bank account.

You might want to open a business bank account at the same bank that handles your personal finances. That way, you can do all your business and personal banking at the same location.

How do I open a business bank account?

To open a business bank account, you can go into your local bank or apply online. Sometimes, you cannot apply online. You must go to your bank for a business bank account if you:

  • provide money services (e.g., issue money orders or store value cards)
  • are a telemarketing business
  • deal precious metals
  • operate a gambling business

Depending on your business structure, you need certain documents to open a business bank account.

Sole proprietorships need:

Partnerships need:

Corporations need:

  • A taxpayer identification number
  • Articles of incorporation

LLCs need:

  • A taxpayer identification number
  • Articles of organization

Do I need a separate bank account for my business?

Unless you are legally required to use a separate business bank account, the choice is up to you. But, using a bank account exclusively for business transactions may save you time.

A business bank account can improve accuracy in your records. Correct financial records help with your tax filings, budgeting, and work with your accountant.

For a simple way to track all your business’s transactions, try Patriot’s online small business accounting software. We offer free support, so getting started is easy. Sign up for your free trial today.

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