Managing your business and personal finances through the same account might seem convenient, but it could be holding your business back. While some small business owners start with personal accounts, having a dedicated business checking account is vital in professionalizing your operations.
Today's banks make opening a business checking account easier than ever, with many of our best online banks offering low-fee options with robust features. Let's explore why you might need a separate business checking account and how it can help your business thrive.
Key Insights
A business checking account is a bank account designed for everyday business transactions, such as receiving revenue and paying expenses.
The SBA recommends you open a dedicated business checking account as soon as you start receiving and making payments.
Business checking accounts can provide liability protection, streamline accounting, and help you get approved for business loans.
When shopping for a business bank account, consider fees, insurance, business features, minimum balance requirements, and integrations.
What Is a Business Checking Account?
A business checking account is a bank account designed for business transactions. You can arrange for receivables to be transferred into it and payables to be transferred out of it. Essentially, it’s the financial home for your business.
However, if you have funds deposited into your business checking account that you don’t plan to spend in the upcoming month or two, it can be beneficial to transfer them to a connected business savings account where you can often earn a higher annual percentage yield (APY).
Business checking accounts differ from personal checking accounts primarily because they’re designed for business rather than personal use. Depending on the structure of your business, you may be required to provide a federal employer identification number (EIN) to set one up.
In contrast, a personal account only requires your Social Security number. Business checking accounts tend to have limits and features that cater to a business customer's needs rather than an individual's needs.
What Is a Business Checking Account?
A business checking account is a dedicated bank account designed specifically for your company's transactions. Unlike personal checking accounts that use your Social Security number (SSN), business accounts often require a federal employer identification number (EIN) and are structured to handle business operations.
Plus, you can transfer funds you won't need immediately to a connected business savings account to earn a higher annual percentage yield (APY).
Key Features and Differences
- Higher transaction limits suited for business volume
- Business-specific tools for managing payables and receivables
- Ability to accept various payment methods and manage employee access
- Dedicated services like merchant processing and payroll support
Why You May Need a Separate Business Account
When you open a business, the US Small Business Association (SBA) says one of the first things you should do is set up a dedicated business checking account. Here’s a closer look at a few of the main benefits it offers:
Tax Compliance & Deductions
A dedicated business checking account serves as your central hub for all business financial activities. When you keep all transactions in one place, you'll benefit in several ways:
- Simplified tracking and reporting: Using one account for all your business revenue and expenses makes it easy to track your daily, weekly, monthly, and yearly income through performance summaries.
- Clear expense management: When all transactions are business-related, you can quickly review expenses and feel confident about your records come tax time.
- Avoid mixed transactions: Using separate accounts prevents the headache of sorting through combined business and personal transactions, which can be time-consuming and error-prone.
- Better tax accuracy: Separating transactions reduces the risk of accounting errors that could cause problems when filing taxes or during an audit.
Legal Protection & Liability
To maintain separation between your business and personal liability, you can opt for a business structure that provides liability protection, such as a Limited Liability Company (LLC) or S-corporation. In both cases, you're separate from your business and can be protected from personal liability for business debts.
For example, if your S-Corp goes bankrupt and owes $20,000 in debt, creditors could only pursue your business assets. Personal assets like your home, vehicles, and bank accounts would be protected.
However, to ensure your business structure protects your assets, you should separate your business and personal finances. That involves opening dedicated bank and/or credit accounts you use only for business expenses.
If you’re personally sued for business debt—courts look at multiple factors to determine if you can be held personally liable, and mixing personal and business finances can work against you.
Credibility & Professionalism
A dedicated business checking account helps build trust and establish your professional reputation. Here's how it strengthens your business:
- Enhanced business image: When customers and vendors make payments to your business name instead of your personal name, it reinforces your professional identity.
- Better vendor relationships: A business account shows suppliers and partners that you're a serious operation, helping to build stronger professional relationships.
- Access to business tools: Get features designed for businesses, like bill pay, expense tracking, multiple-user access, and payroll processing.
- Financing preparation: Most business lenders require a dedicated business account, and they'll review your transaction history during the loan application process.
When You Might Not Need a Business Checking Account
A dedicated business checking account might not be essential in some situations. If you run a sole proprietorship, you won't gain liability protection from a business account since you and your business are legally the same entity.
Similarly, if you're just starting out with minimal transactions, mixing them with personal accounts might be manageable in the short term.
However, even in these cases, many business accounts are free and can save you significant time during tax season by organizing your business transactions from the start. Having an established business account will make the transition easier and more professional as your business grows.
Choosing the Right Business Checking Account
When shopping for a business checking account, focus on the features that matter most for your specific business needs. Here are the key factors to consider:
- Monthly and service fees: Some accounts are free, while others charge recurring fees. Look for accounts that allow you to waive monthly fees by maintaining a minimum balance or meeting other requirements.
- APY: Some banks provide interest yields on the money you keep in the account, which is communicated as annual percentage yields (APYs). The higher the APY, the more you can earn.
- Allowed users: Banks may limit the number of debit cards issued per account. Assess your needs and look for a good fit.
- FDIC Insurance: This protects your money in the event of a bank default. Check if an account is FDIC-insured and how much of your money will be protected.
- ATM network: Banks have ATM networks that you can use for free. Check each bank’s ATM network size and if there are free terminals in places you frequent.
- Deposit network: Some online banks don’t have physical branches where you can deposit funds. Instead, they have networks of partner locations that accept deposits. Check the size of the deposit network and if it’ll work for you.
- Business features: Examples include auto-sorting transactions into tax categories, bill pay, tax savings sub-accounts, and auto-filled tax forms.
- Integrations: Banks may also offer integrations with other software your business uses, such as QuickBooks Online, Xero, Netsuite, and Gusto.
Now, let's look at some popular business checking accounts and what they offer.
Relay
Relay offers a no-fee business checking account that's FDIC-insured up to $3 million. There are no minimum balance requirements. The account includes:
- Up to 20 sub-checking accounts
- Up to 50 Visa debit cards with customizable spending limits
- Automatic purchase categorization and receipt management
- Integrations with QuickBooks Online, Xero, and Gusto for seamless bookkeeping and payroll
Lili
Lili offers a free checking account designed for small businesses to manage all their finances in one place. Key features include:
- No minimum balance requirements
- No overdraft fees
- FDIC insurance up to $250,000
- Account access for owners with 25%+ ownership stake
- Upgrade for expense management tools, accounting software, and tax preparation software
Bluevine
Bluevine is a fintech company that offers banking services tailored for small businesses. Its free checking account includes:
- No minimum balance requirements
- No overdraft fees
- Five sub-accounts
- 1.5% APY on balances
- FDIC insurance up to $3 million
- Premium upgrades for higher APY, additional sub-accounts, payment fee discounts, and treasury services
| Relay | Lili Basic | Bluevine Standard | |
|---|---|---|---|
| Monthly fees | No | No | No |
| Overdraft fees | No | No | No |
| Minimum balance fees | No | No | No |
| APY | 0% | 0% | 1.5% on balances up to $250K |
| ATM network | 55K | 40K | 37K |
| Insurance | $3 million FDIC | $250,000 FDIC | $3 million FDIC |
Conclusion
Do you need a business checking account? For most businesses, the answer is yes. The benefits—from simplified tax reporting to enhanced professionalism—outweigh any minor hassles.
While sole proprietors with minimal transactions might manage without one initially, the numerous online business accounts make it an easy choice for growing your business professionally.
