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Can You Use a Personal Checking Account for Your Business?

Learn about the dangers of using a personal checking account for your business finances and how you can better separate your own finances from your business.

Yes. Technically, you could use a personal checking account for your business. It isn’t ideal, though.

Running a successful business requires a lot of work.

An owner is responsible for generating revenue and paying the company’s expenses. Some businesses hire and pay employees to help.

Tools can help you track finances more easily. Some owners do not take advantage of these tools. This can make their life harder.

After all, owners must stay on top of the business’s finances to make smart decisions about its future.

One commonly used tool is a business checking account, which is its own separate checking account strictly for business finances.

Why You Should Open a Business Checking Account

There are several reasons your business should want to have a separate business checking account rather than using a personal checking account.

Clear separation of assets

The most obvious reason to have separate accounts for personal and business purposes is to separate business and personal assets.

When you mix personal and business transactions, it’s hard to tell how your business is doing.

You may feel like your business is struggling if you’re buying everything for your personal life from the same account you use for your business.

Instead, you may just have a personal spending problem.

Once you have both account types, you only use the correct account type for the corresponding transactions.

Your business accounts will only show business items. This lets you clearly see how your business is performing.

You may opt to keep things simple and only have one business account. If all transactions flow through it, you can easily see a snapshot of your business’s profitability.

You can add up all incoming income transactions to get your total income. The same goes for your expenses. Subtract expenses from income to get profit before taxes.

Makes life easier for accountants and bookkeepers

Some people do their taxes and business accounting themselves. Others hire a bookkeeper or accountant.

Keeping business and personal expenses separate will make your life much easier. It could even save you money if you use an accountant or bookkeeper.

Accounting professionals often charge by the hour or by the complexity of the client. If they must spend time separating personal and business expenses, you’re paying for that service.

Having a separate business account will likely reduce the number of questions your accountant has for you.

Accountants won’t have to send as many emails or make as many phone calls to clear up a messy bank account. This can save you time and frustration.

Provides services your business may need

Businesses may have different needs than a personal bank account offers. This can become very apparent as a business grows.

Business accounts can provide higher service levels and more options. The account benefits depend on the business account you pick and your needs.

Business accounts may:

Avoids piercing the corporate veil

Some types of business structures help protect their owners from liabilities the business owes. Others do not. Sole proprietors that own sole proprietorships do not have these protections.

Typically liability protection exists with corporations and limited liability corporations (LLCs). However, these owners can sign away some of this protection. This is common if they personally guarantee loans.

Some liabilities arise from the ordinary course of business. Someone may slip and fall in a store.

The owner may not have insurance. In this case, the person who fell can likely sue the company.

The company may not have enough money to pay the claim from business accounts. The injured individual may try to go after the small business owners’s personal assets directly.

Properly structured companies may be able to protect the owners' assets. To protect themselves, owners must follow the rules. Otherwise, the protections won’t be in place.

One way a person may be able to go after an owner’s personal assets is if they pierce the corporate veil.

To have the protections of the corporate veil, business and personal assets must be completely separate.

If business owners mix personal and business transactions in accounts, they pierce the corporate veil. This potentially opens owners up to personal liability.

Separation of personal and business expenses to maintain the corporate veil is one of the major reasons to have a business checking account.

What You Need to Open a Business Checking Account

Opening a business checking account isn’t difficult. Even so, it’s good to know what to expect before heading to a branch.

Documents you need to open a business checking account

Opening a business checking account requires certain documents. This information allows the account to be opened in the business’s name.

Each bank may have slightly different requirements. It’s best to call and ask what you need before heading to a branch.

Most banks generally need the following information to open a business checking account:

  • Company’s employer identification number (EIN) or your Social Security number (SSN)
  • Two forms of identification, including a state-issued identification card or passport
  • Doing Business As (DBA) certificate or similarly named document, if applicable
  • Business license or registration, if applicable
  • Partnership or LLC agreement between all owners, if applicable
  • Initial deposit

What to Look for in a Business Checking Account

Finding the right business checking account could be more involved than finding the right personal checking account.

Businesses have a wider variety of needs than individuals.

You’ll need to take a close look at your business’s banking needs. This allows you to figure out what your business’s priorities are.

Keep in mind your goals to grow your business. These may impact which account you choose.

Start by looking at the services each bank offers. Most businesses want access to online banking, the lowest fees possible, and the convenience features they’ll use often.

Fees

Fees can add up to a lot more on a business checking account than on a personal account. Look out for:

  • Monthly maintenance fees
  • Cash transaction limits and fees
  • Overall transaction limits and fees
  • Other ancillary fees a bank charges

The easiest way to do this is to ask for a fee schedule.

Alternatively, you may find the information in the terms and conditions of the account you’re considering.

Interest rates

You may also want to look at the interest rates banks pay. Many banks pay no interest or very low interest rates.

Some business checking accounts may offer competitive rates worth considering. Interest rates are a bigger deal when you keep more money in your business checking account.

Locations

Time can be tight for business owners. Make sure any bank you’re considering has convenient locations.

If you plan to visit branches often, having a location near your business or home can be key. Look for convenient fee-free ATM locations if you only need ATM access.

Services

When shopping for a bank, consider any services you may need. It’s possible your business receives a large amount of cash. In that case, look for a bank that allows large cash deposits with minimal fees.

Other businesses may primarily receive credit card payments. A bank may offer a payment processing solution with affordable fees to solve this.

Wire transfers may be some companies' primary method of receiving and sending payments. These businesses may prefer a bank that offers wires at no cost or a low fee.

Consider Speaking with Professionals

Before you open a bank account, you might be best off consulting a professional.

These professionals won’t necessarily help you open a bank account.

That said:

They can help ensure your business is structured correctly before opening a bank account.

Two types of professionals you may want to consult could include:

  • Tax professionals
  • Legal professional

Legal professionals can help you set up your business structure. They may not be aware of your financial situation.

This could result in a business structure that doesn’t match your tax situation.

A tax professional can look into your personal and business tax situation. Then, they can help you decide which business structure is best from a tax perspective.

They may refer you to a legal professional to formally set up the business. Other tax professionals may be able to do this in-house.

Depending on the complexity of your business, it may make sense to consult both types of professionals.

Take Action

Now that you know the benefits of having a separate business bank account, it’s time to start the process.

If you feel it is necessary, contact the appropriate professionals to help set up your business properly.

Once the business administrative processes are complete, shop for the best business checking account for your needs. After you find your top choice, open an account and start keeping separate business and personal finances.

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