This is a question every new business owner faces at some point. Maybe you have been running a small side hustle for a while and are ready to make it an official business, or perhaps you are just starting out and are not sure when this is a necessary step.
Check out the benefits of having a business savings account and checking account, seven reasons why you will need an account, mistakes to avoid, what you will need, and how to choose the right account.
Benefits to having a business account
You may be wondering why a business checking account or savings account is different from your personal bank account and why you should go through the trouble of setting one up. Especially if your business is not bringing in a lot of money yet.
At first glance, you may see the extra fees associated with a business account and be tempted to put this off, but the pros easily outweigh the cons. Here are perks unique to business accounts:
Business accounts protect the qualifying account holder by offering personal liability protection by keeping your personal and business funds separate. Merchant services also protect your customer’s personal information with added security measures.
Your customers will feel safer being able to make payments by card or check directly to your business versus to you personally. Having a small business checking account also allows employees to handle banking tasks on behalf of the business.
When setting up a business account, it comes with a line of credit for the business in case of emergency or big purchases.
Most people do not have the extra funds needed for a business start-up, so this will enable you to get business credit cards that will help you get your business off the ground and build your credit.
Seven reasons why you need a business account
Now that you see the benefits of having one, let’s go over a few reasons why you will need one and how you will know it is the right time.
Clean and accurate bookkeeping
You may not have many transactions to separate from personal and business in the beginning, but that number will add up as your business grows. Once tax season rolls around, and you have a clean record to give your account, you will be so thankful you made this decision early on. Also, be sure to keep all receipts and invoices to give your accountant.
Legitimizing your business
Your fun hobby or side hustle that is growing beyond what you would have imagined may not be a side hustle or hobby anymore but a legitimate business. You will now be able to make business write-offs and deductions and reap the benefits of being a business owner. This is also a way to maintain good standing with the IRS and other financial institutions to avoid audits.
Separate accounts are required for incorporated business and business loans
The IRS requires separate accounts if your business is incorporated, and yes, that includes sole proprietorship and partnership. This sets the business apart from you personally, which is very important for many reasons. If your business needs any loans, you will need a business account.
A clear audit trail for the IRS
No one likes being audited, and hopefully, it will not happen often. But it is likely to happen some over the years that you are in business. Having a clear trail of all expenses, invoices, and receipts will make the process a breeze. Unorganized bookkeeping is a complete nightmare if you are selected for an audit.
This is huge in the eyes of those you are doing business with and gives people security when exchanging money for services. This is also necessary to accept debit card and ACH transactions and set up a sales system point. When people see your business name on invoices and checks, it reemphasizes the legitimacy of your business. This is great for the IRS as…