A common concern of business owners, especially those who are sole proprietors, is whether they should open a business bank account. You may want to consider the benefits before going without this type of bank account.
Required for some business structures
IRS requires that LLCs and corporations separate their bookkeeping and accounting records from their personal finances. This is easy to do with a business bank account.
If you want to apply for a business loan, lenders usually require that you have a business bank account. Even if you don’t think you’ll ever need a loan, you might want to prepare yourself for the possibility. Your business could fall on tough times or experience an emergency situation. You may change your mind about staying small and want to expand.
An IRS audit could happen to anyone, so it’s helpful to keep your business transactions separate from your personal finances. A business bank account makes it easier and faster for you to prove your innocence.
Show that your business isn’t a hobby
IRS might classify your business as a hobby if it experiences a loss three years in a row. It becomes more challenging to prove that it’s a business when you don’t keep your personal expenses separate.
Using a business bank account saves you time because you don’t have to filter out your personal expenses while bookkeeping. Maintaining accurate records and regularly checking on your business’s finances reduces your stress and increases your chance of success. Clarity over your finances alerts you quickly to potential problems with cash flow before they become detrimental.
Opening a business bank account is the easiest way to keep your business transactions separate from personal expenses. In some situations, you need a business account to get a loan or structure your company as an LLC or corporation.