However, one important step -- opening a business bank account -- can fly under the radar. Possibly because it’s not a legal requirement, opening a separate account for your small business is usually seen as a hassle you can put off for another day. It seems like just another extra bucket of fees to pay. Surely your personal account will work just fine, right?
But, there are some counter thoughts to that conclusion:
Even if you are a sole proprietorship, and don’t have to worry about “veil piercing” and other legal transparency requirements of running a corporation, it’s still important to separate your business finances from your personal finances, and the best way to do that is through a dedicated business bank account.
It can seem tempting to simply start a new personal checking account that you use strictly for business expenses, but there are still organizational and professional ramifications of not getting a dedicated bank account in the name of your business.
That’s why, no matter what your business structure, the consensus from the experts is that you should establish a business bank account as soon as possible for the following reasons:
Not only does a business bank account help you to separate your personal assets from your professional assets, but it makes it easier to track business expenses and income. This is invaluable during tax prep time, especially since some business accounts offer the ability to tag expenses that qualify as deductions as you spend-- something a personal checking account can’t do.
It’s always good to put your best foot forward, and when you use a business bank account to interact with vendors, contractors or clients, a business name on an account reassures them that your business is legitimate. There’s an awkwardness, and sometimes outright confusion, if an invoice or payment is shown with your personal name rather than the business name. It also doesn’t reflect well with business regulatory entities like your Secretary of State and the IRS.
If your business is incorporated in any way (be it sole prop, partnership or corporation), the IRS requires you to have a separate bank account from your personal finances. If you ever go through an audit, successfully defending your business requires you to recreate records that prove your income. If your personal finances appear to be mixed up in those statements, your audit can become more complicated.
Ease of Use for Your Partners and Trusted Employees
Typically, you sign up for a business bank account with your EIN instead of your social security number. This allows for your account to have multiple cardholders, instead of keeping track of one debit card across multiple people. Of course, you only ever want to share your bank details with employees and partners you trust. But when those trusted individuals aren’t roadblacked by access to funds to complete the tasks you have asked them to do, your business will run more efficiently. You can also often set spending limits on employee cards. Even if you don’t have employees or partners today with which you want to share your account access, changing your bank account down the line when you eventually do grow can be a huge hassle. It’s better to pick a bank you trust and an account that will easily grow with you, right off the bat.
It’s true, business bank accounts have a reputation for charging more fees, and this is what turns so many folks away from the benefits above. Want a professional business bank account with overdraft protection, no overdraft fees, free ATM withdrawals and up to 15% discounts and perks? Get on the waitlist today, and be the first in line for when we launch.
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Hatch is not a bank. Banking services are provided by LendingClub Bank, National Association, Member FDIC. The Hatch Mastercard Debit Card is issued by LendingClub Bank, National Association, Member FDIC.