Are You Still Using Your Personal Bank Account for Your Business?

 

However, too many small business owners make the mistake of using a personal bank account for their business. While it may seem like a silly formality to open a business account, using your personal account can affect your legal liability. If you’re still using your personal bank account for your business, here’s what you need to know.

 

 

Forming an LLC or corporation is a critical step to protect your personal assets from any liability of the company. The courts consider the business (Corporation or LLC) a separate entity from the business owners; if your corporation gets sued, you can’t be sued personally (unless you’ve personally guaranteed anything).

 

However, if you commingle your personal and business finances, it can appear that you and the Corporation aren’t separate entities and you might be personally liable. In other words, your corporate shield is pierced.

 

Opening a business checking account is a critical step to making sure your LLC or corporation stays in compliance and protects your personal assets.

 

 

While keeping your personal and business finances is mandatory for Corporations, it’s good practice for sole proprietors as well. Differentiating your personal expenses from business expenses can be cumbersome and time-consuming when all your purchases are in the same account. In addition, if your business happens to be audited, the IRS may frown on legitimate business expenses just because they were purchased with your personal account. For this reason, you should:

 

• Open a business credit card: While I normally don’t recommend opening any new credit lines, in this case it’s a smart idea. By putting all your business expenses on the business card, you’ve got an instant audit trail of your year’s expenses when tax time rolls around. Many business credit cards also come with business “perks,” such as frequent travel discounts, business rewards or cash-back options, higher credit limits, longer billing cycles, and lower interest rates.
• Open a business checking/savings account: If you’re operating as an LLC or Corp, your business needs to have its own checking account. If you’re a sole proprietor, you’re able to use your own personal checking account, but having a separate business account will help you keep track of your profits.

 

 

In addition, having a business account conveys a greater sense of credibility and professionalism to your business. Think about the difference between receiving a personal check vs. a business check: which business would you take more seriously?

 

Whether you’re looking for a bank, credit card company, or merchant account, make sure to select a company that’s right for your business needs. For example, how many checks will you be depositing each week? Do you need the ability to deposit large amounts of cash? How many checks do you need to write each week, and is in-person banking important to you?