Keeping It Professional: 3 Reasons Why You Need a Business Bank Account

March 13, 2017

As a small business owner or freelancer, you probably encounter a lot of overlap between your business finances and personal finances. On the surface, it seems simpler to just have one bank account—after all, it’s a centralized place to keep tabs on client payments that come in, and personal and business expenses that go out.

However, there are several reasons why you must separate your business finances from your personal finances. For one, having a business bank account will separate itself from your personal assets, while streamlining your tax records. But that’s not all. Below are the three reasons why opening a business bank account is crucial for your business and your financial sanity.

Reason #1: A Business Bank Account Keeps the “Corporate Veil” Intact to Protect Your Personal Assets

Many small business owners form a limited liability company (LLC) or corporation because it helps shield their personal assets from things that might happen in the business—for instance, if the business is sued or can’t pay its debts. This is known as a “corporate veil” since it forms some separation between the business owner and the business.

In order to keep that personal liability protection, you need to properly maintain your LLC or corporation. This includes drawing a clear line between your business finances and your personal finances. By creating a business bank account, you ensure that your business is its own entity and separate from you as an individual.

In addition, if your business is ever sued, the plaintiff may try to pierce your corporate veil by showing you haven’t maintained the corporation/LLC to the letter of the law. In this case, they can go after your personal assets. In instances like this, that’s why it’s absolutely critical for LLCs and corporations to keep business finances completely separated from personal finances.

Reason #2: A Business Bank Account Helps You Stay Organized Come Tax Time

Combining your personal account and business account is asking for more trouble that you’d think. Ultimately, combined accounts make it harder to stay on top of your books come tax time.

You may find yourself spending countless hours wading through the past year’s transactions—including personal trips to the grocery store—just to find business expenses to write off. Having separate accounts streamlines your recordkeeping which, at the end of the day, saves you time and ensures you won’t miss any legitimate deductions.



Reason #3: A Business Bank Account Gives You More Credibility to Your Paying Clients

When you’re running a business, it can look a tad unprofessional to pay your contractors with a personal check or have your clients write a check to you as an individual. Will this ever be a deal breaker? Probably not. But, having a dedicated business banking account can send the right signals as you scale your operations and evolve from freelancer to business owner.

As a side note, if you’re running your business as a sole proprietorship, you don’t legally need a separate bank account for your business, but it’s still a good idea for the second and third reasons. Having a business bank account can help make your case to the IRS that you are indeed running a business and are entitled to deduct your business expenses should you ever be audited.

You Ready? What You Need to Open Your First Business Bank Account

Opening a business bank account is a relatively simple process. To make things easier, you can open an account at the same bank where you already have a personal account, so you only have to deal with one institution. Alternatively, you may receive reduce banking rates if you belong to a professional group or organization—such as a group for writers, veterans or performers. Check if they offer access to business checking services through a specialized credit union. This can be a great option.

No matter where you choose to open your business account, you’ll need the following documentation:



As your business grows, it’s crucial to build a proper legal and financial foundation. Opening a separate bank account is one small step in that direction, and will help keep your books organized, as well as ensure your business and personal lives remain separated. In addition, opening a bank account will help form your business’ credit history—a big milestone should you ever want to take out a business loan or line of credit in the future.

This is an archived post from the FreshBooks Blog and was originally published in February 2016.

about the author

Freelance Contributor Nellie Akalp is a passionate entrepreneur, small business expert, professional speaker, author and mother of four. She is the Founder and CEO of CorpNet.com, an online legal document filing service and recognized Inc.5000 company. At CorpNet, Nellie assists entrepreneurs across all 50 states to start a business, incorporate, form an LLC, and apply for trademarks. She also offers free business compliance tools for any entrepreneur to utilize. Connect with Nellie on LinkedIn.

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