April 2019 Educate

Why You Shouldn’t Do Business from Your Personal Bank Account


Written By: Wendy Robertson

As a banker, I often advise clients on their businesses, and I love helping them. Right off the bat, I routinely find that they operate with one bank account – mixing money in their personal bank account with money for their business.

That’s a no-no for several reasons, ranging from the potential personal liability if someone sues your business to the difficulty of determining your tax liability.

It’s important to have a well-managed business banking account if you want to borrow money for your business. Having a clear understanding of the financial position of your business helps you see how much money you’re making (or losing), which puts you in the best position to grow.

Let me explain.

  1. If you don’t have a separate account and your business gets sued, you stand to lose your personal assets. There are many benefits associated with a sole proprietorship, but the state makes little distinction between your business assets and your personal assets if you are sued.

TIP: As an S Corporation or an LLC, your business and personal assets will be viewed as separate entities.

2. Having a business bank account helps you keep track of your tax obligation. A separate business account allows you to monitor income and expenses associated with your business. Consequently, this enables you to keep track of your taxes.

TIP: Separate your business credit card from personal credit cards.

3. A business account enables an IRS auditor to identify business transactions. It may appear redundant to pay your salary into your business account, only to transfer it back into your personal account. But this process will enable an auditor to clearly distinguish between your personal expenses and expenses related to business activities.

TIP: This will make you appear more professional and make a positive impact on your suppliers and customers.

4. If you open the account today, you will save time tomorrow. As your business grows, it will be crucial to open a business account in order to allow for the expansion of the business. Banks will also require these records when applying for loans. By taking care of this step early, you will save yourself from additional workload later.

TIP: A business account generally allows you to open a personal account free of charge.

What documents are required when opening a business account? 

Sole Proprietor/General Partnership

  • Social Security number (sole proprietorship) or Business Tax Identification Number (EIN) (general partnership)
  • Filed fictitious business name
  • Business license with the name of the business and the owners’ name(s)

Limited Liability Company:

  • Social Security number or EIN
  • Articles of organization
  • Certificate of organization
  • Organizing document filed with the state

General Partnership/Limited Partnership/Limited Liability Partnership:

  • EIN
  • Partnership agreement with the name of the business and its partners
  • Organizing document filed with the state or origin
  • Certificate of assumed name
  • Business license

S-Corp:

  • Social Security number or EIN
  • Articles of organization
  • Certificate of organization
  • Organizing document filed with state
  • Certificate of assumed name
  • Balance sheet

Final Thoughts

When opening a business banking account, look for a banker who shows interest in helping your business grow and offers you a variety of loan products, looking for the ones best for you. Also seek out a bank that provides services such as picking up your deposits. 

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