Importance of Business Checking Accounts for Small Businesses

If you’ve just started a small business or have been running a side hustle for quite some time, it’s tempting to simply use your personal banking account for all your business needs. 

That’s a temptation worth resisting. Failing to separate your business from your personal finances today can lead to financial, taxation, and legal problems that might end up costing you more in the long run.

In this blog, we take a look at why your small business or start-up deserves a dedicated business checking account from the get-go. We’ll discuss what makes a business checking account different from a personal checking account, what a business checking account can help you achieve, and why you shouldn’t use a personal checking account to run your business.

DO I NEED A BUSINESS CHECKING ACCOUNT?

In the early stages, a business can seem very much like an extension of your personal finances. After all, you’re likely providing most of the capital and there’s a good chance you’re the only employee, owner, and shareholder. 

All that can make it tempting to run your business out of your personal checking account. Although that may be more convenient to start with, we advise against it. In fact, the sooner you can set your business up with its own checking account, the better.

IS A BUSINESS ACCOUNT REALLY NECESSARY?

Yes, it’s a good idea because business checking accounts are designed with the specific needs of businesses in mind and because separating your personal and business accounts is important for legal and taxation purposes.

SPECIALIZED FEATURES AND BENEFITS

Business checking accounts include features and benefits designed to help you manage your business effectively. These generally include: 

• Higher transaction limits
• Merchant services
• Linked debit cards for services
• Specialist tools to help track expenses and revenue

Some business accounts also feature enhanced security and fraud protection to help keep your business assets safe. While you may feel you do not need many of these services yet, having them in place now lets you grow your business with confidence. 

LEGAL COMPLIANCE

Depending on your business structure, you might already be legally required to keep your personal and business finances separate. This is particularly true for LLCs and full corporations, where commingling funds could compromise the limited liability protection you enjoy under the law.

SIMPLIFIED TAX PREPARATION

Keeping your business transactions separate from your personal ones also makes it easier to track deductible expenses, identify credits, and prepare accurate returns at tax time. This can save you time and reduce the risk of a costly error or an audit.

BUSINESS VS. PERSONAL ACCOUNTS

Now let’s take a closer look at some features that distinguish business and personal checking accounts.

TRANSACTION LIMITS

Business checking accounts offer higher transaction limits compared with personal accounts to accommodate the far greater volume of transactions that businesses typically handle.

FEES

Business checking accounts often come with higher fees than personal accounts, and monthly maintenance fees, transaction fees, and deposit fees are also more common. However, some business accounts also waive these fees if you meet certain criteria.

INTEREST RATES

Interest rates on business checking accounts tend to be lower than those on some high-yield personal checking accounts. This is simply because for business checking, earning interest is not as important as managing cash flow and accessing essential business services.

ONLINE BANKING SERVICES

Business checking accounts typically allow multiple employees to access online banking services to manage cash and handle orders and purchases. Access is managed by the business owner or financial officer. 

EMPLOYEE DEBIT CARDS

Similarly, many business checking accounts allow holders to issue employee debit cards to key employees to allow them to access cash and make business purchases. Again, the primary cardholder, usually the business owner or financial officer, can set spending and ATM withdrawal limits for each card.

MERCHANT SERVICES

Business checking accounts also typically come with merchant services, which are crucial for businesses that accept credit card or automated clearing house (ACH) payments. Some accounts also make it easier to accept wire payments. 

These services lower the costs and streamline the process of accepting payments, which is critical to driving revenue.

The following table summarizes the differences between business and personal checking accounts:

USING PERSONAL CHECKING FOR BUSINESS

Can I use a personal checking account for business? Using a personal checking account for business purposes is possible, especially if your business is a side hustle or part-time gig. 

One potential “pro” of doing this would be to benefit from fewer fees or a higher interest rate on the balance you maintain in your account, or simply for the convenience of operating just one account for personal and business use.

However, it’s possible that the “cons” could outweigh any advantages you might hope to gain by doing this. It’s likely the lower transaction limits on most checking accounts would hinder all but the very smallest businesses, and the inability to process payments as a merchant would also restrict your ability to maximize revenue.

SMALL BUSINESSES AND CHECKING ACCOUNTS

If you’re a small business owner weighing whether to continue using a personal checking account or a dedicated business checking account, here are some reasons you should consider making the switch.

1. SIMPLIFIES TAX PREPARATION

You’ll appreciate having a dedicated business account at tax time. You’ll be able to refer directly to your statements when calculating expenses and deductions without splitting out personal and business transactions. It will also make it easier to provide supporting documentation with your return or in the event you are audited.

2. EASIER TO APPLY FOR LOANS AND GRANTS

Similarly, you’ll be able to provide clear, convincing details about your business to potential lenders or grant committees without having to disclose details about your personal finances.

3. PROTECTS YOUR LIABILITY

Limited Liability Companies (LLCs) and fully incorporated corporations are required by law to separate business expenses from those of principal officers. This protects your limited liability in the event of your company being sued or having to file for bankruptcy. In cases like this, it can protect your personal assets from business creditors.

4. ENHANCES YOUR PROFESSIONAL IMAGE

A dedicated bank account projects an image of professionalism, competency, and stability to your clients, customers, investors, and stakeholders, enhancing the reputation of your business as a well-managed and financially sound enterprise.

5. BUILDS A BANKING RELATIONSHIP

Perhaps most importantly, opening a checking account for your business allows you to establish a business relationship with your financial institution. This can be important if you are going to need additional services or want to apply for a business loan in the future. 

Local credit unions, in particular, have a natural interest in the long-term success of their business members and often build enduring partnerships that benefit both the business and the credit union. And it all starts with opening a checking account.

COMMON USES OF BUSINESS CHECKING ACCOUNTS

The benefits of a business checking account to your enterprise or startup are clear, but what is a business checking account commonly used for?

Here are three typical uses:

1. PAYING BILLS

A business checking account simplifies the process of managing your accounts payable. Whether it’s utilities, rent, or supplier invoices, having a dedicated account ensures all your business expenses are tracked and managed from a single place. That means fewer late or missed payments, and an easier time reconciling your accounts at the end of each month.

2. MANAGING PAYROLL

Paying your employees from a business account helps maintain clear records of salaries, wages, and any other compensation paid. That makes it easier to generate payroll reports, keep track of expenses, and ensure you comply with payroll tax regulations and other laws. 

3. TRACKING REVENUE AND EXPENSES

A business checking account allows you to track revenue and expenses accurately, so you can monitor cash flow, identify threats and potential opportunities, and make informed financial decisions. Good information informs better decision-making. The future of your business may depend on it.

OPENING A BUSINESS CHECKING ACCOUNT 

What is needed to open a business checking account? 

While opening a business checking account is straightforward, banks and credit unions do require additional documentation, depending on the type of business you are running, to approve a business checking account.

In all cases, you’ll need to provide a state-issued ID to prove your own identity. Additional documentation depends on the type of business registration you have:

WASATCH PEAKS: JOIN OUR BUSINESS COMMUNITY

At Wasatch Peaks Credit Union, we’re committed to doing everything we can to help our local businesses thrive. That’s why we offer three different types of checking accounts designed to serve the needs of businesses of all types.

• Our Aspire Checking Account offers merchant services with no minimum balance requirement to help start-up businesses get off the ground.
• Our Vista Checking Account provides multiple-user online banking and streamlined payment processing for businesses with consistent volume.
• Our Pinnacle Checking Account delivers bulk payment processing and discounted loan rates to businesses with significant monthly activity.

Talk to us about the right business checking account for your business. We’re excited to have you join the many community business owners in Davis, Weber, and Morgan counties who already work closely with Wasatch Peaks Credit Union.

Click below to learn more about our business banking services.

See Our Business Checking Options & Benefits