Is a Small Business Bank Account Worth It? FAQs + Why We Think the Answer Is a Resounding “Yes”

8 min
Dec 19, 2022

You’ve got the perfect location, a fool-proof business plan, and a product the public just can’t resist. 

But there’s still one thing you’re not quite sure about.

Do you need a small business bank account?

Whether you’re new to the world of small business or have been operating for a while, deciding whether you need a small business bank account can get confusing. 

We dig into the importance and the benefits of small business bank accounts and beneficial and why we recommend opening yours today.

Do I Need a Small Business Bank Account?

The answer is yes and no.

If you’re a sole proprietor, having a small business bank account isn’t required but can be beneficial. 

But if you have a limited liability company (LLC), getting a small business bank account might be one of the wisest things you can do to protect your business and set it on the path to growth.

Does the IRS Require a Business Bank Account?

While it’s not required, the IRS recommends that all small business owners have separate business bank accounts. 

Can I Use a Personal Checking Account for My LLC?

Yes, you can use a personal checking account for your LLC. The question is, should you?

Using a personal checking account for an LLC is not advisable and can make both your personal and business financials more complicated than needed. Plus, your bank's terms and conditions may prohibit you from using your personal account for your business transactions.

10 Reasons Why We Recommend Opening a Business Bank Account

#1: Separating Personal and Business Expenses

One of the main problems that entrepreneurs get wrong when starting a business (or even years into a business) is not having clean financial records.

If you only use a personal bank account for your LLC, you’re responsible for keeping meticulous records to separate what was a business expense and what was a personal expense.

Like that meal you had five five months ago at the steakhouse down the road. The one where you sometimes take clients, but also sometimes go with your spouse.

If you’re paying for everything through one account —  sometimes for a client meeting and sometimes for a fancy date with your spouse — your finances can get fuzzy really quick.

But by separating your personal and business expenses through separate accounts, it all becomes crystal clear. 

All funds going in and out of your business bank account are business-related.

All funds going in and out of your personal bank account are, of course, personal.

It makes your business life and real life so much easier! And, if you ever get audited, there’s no crossover or confusion.

#2: Building Business Credit

By having a dedicated business account, even without a business credit card, you can set up net terms with your vendors and suppliers who report to business credit reporting agencies.

We recommend, alongside this, also getting a business credit card (even if it only carries a low limit to start) so that you can further build your business credit.

#3: Potential Liability Protection

For LLCs and other business formations such as corporations and S-corps, you’ve created a legal separation between the individual and the business. 

But just registering an LLC isn’t enough. If you mingle business funds with your personal checking account and aren’t following other financial best practices, then there’s a still risk of liability.

However, if you’ve set up an LLC and are using best practices to separate personal and business funds, that will be beneficial in case any personal or business litigation is encountered. 

For example, let’s say you’re driving home from ice cream with a friend. 

You take your eyes off the wheel for .3 seconds and boom! You rear-end the person in front of you.

Well, that person’s attorney learns you’re a business owner — meaning that attorney is going to do everything they can to go after your business. (Were you driving to a client meeting and therefore your business is responsible?)

Since you just went to ice cream with your friend and ran it through your personal bank account’s debit card (compared to a lunch meeting on your business bank account’s debit card the day before), your separate business bank account could provide evidence to keep your business protected. 

Your personal funds will be less vulnerable if the business enters litigation. 

And the same with the other way around. If you personally enter litigation, your business funds will be less vulnerable.

#4: Simplifying Your Taxes

Trust us. Your accountant will love you for this one! (And you may get a sweet financial payoff, as well.)

When it comes time to do your taxes, separating your personal and business expenses can be crazy-complicated. 

If a tax professional is preparing your taxes, they’re not going to have any idea how to distinguish between the two, which can lead to a couple of circumstances: 

  1. Your tax person will spend a ton of time trying to wade through your personal vs. business expenses, and will most likely call you with questions. The problem is that since some of those expenses will be from nearly a year ago, you may not know the answers. 
  2. Many business expenses, and the tax deductions you should be receiving from them, will be missed.

So you’ve missed potential expenses that may very well be business deductions and incurred higher fees charged by your preparer to cover all the extra time they invested in what is essentially a bookkeeping task.

The good news is that having a separate business account alleviates both issues — keeping more of your hard-earned dollars in your pocket where they belong.

#5: Providing Business Credibility

Another reason you need a small business bank account is that it helps your business look more like a legitimate business and less like a hobby. 

Your clients will be more inclined to trust you when your payments and checks are coming from an account under your business name. 

Plus, you can use your business bank account to verify the legitimacy of your business if you decide it’s time to apply for a business loan or credit card

#6: Easy Assessment of Your Performance

Keeping your business finances separate from your personal finances also gives you a much clearer picture of how your business is performing. 

When your income and expenses are running through the same account, it becomes easy to access important ratios that can help you address your business’s performance, such as: 

  • Liquidity ratios - These measure the amount of cash and easy-to-convert assets you have available to cover your debts and give the big picture of your financial health.
  • Efficiency ratios - These are generally measured over a three to five-year block and provide additional insight into things such as cash flow, collections, and operational results.
  • Profitability ratios - These can be used to not only evaluate your business’s financial viability, but are also indispensable for comparing your business to others in your industry. Plus, they allow you to see trends in your company by comparing the ratios from year to year.
  • Leverage ratios - These ratios give an indication of your company’s long-term solvency and how you are utilizing long-term debt to support your business.

#7: Building a Banking Relationship

Developing a business banking relationship with a bank you trust is the perfect way to get your foot in the door when it comes time for business credit cards and loans. 

#8: Generating a Credit Report

Did you know that businesses have credit scores? 

Many business owners don't, but they're critical if you ever decide to apply for funding, such as a small business loan. 

While having a business checking account won't necessarily help you build your business’s credit, it will help to establish your business. This sends the signal to credit bureaus that it's time to create a credit report for your business. 

#9: Accepting Credit Cards

Accepting credit cards may very well be the biggest reason you need to have a bank account for your business. 

Consumers use credit cards all day, every day, and if you hope to expand your business you’ve got to accept them. But that can’t take place through your personal bank account — it can only happen through a business account. These accounts are specifically set up just for the purpose of accepting cards and can make the process simple and seamless.

#10: Preparing for a Potential Sale

Are you considering the potential sale of your small business? If so, there are several reasons why you want to have a bank account for your business.

The first is that your business should have a bank account specifically tied to it, especially if it’s a partnership or corporation. When your business is sold, that bank account will transfer to the new owners via the sale.

But besides the sales transaction, there is also the matter of documenting your business’s performance in preparation to sell.

A potential buyer will want to see a history of your financial transactions. And examining your financial statements will only be the starting point. They will, of course, want to dig deeper, meaning they’ll take a close look at your supporting documents for the numbers you’re showing in your financials.

They’ll analyze your bank statements for the past several years. (Since bank statements are issued by the bank, they represent a reliable form of third-party verification of hard numbers.)

The sale of a small business generally prompts an investigation process akin to an audit, where the more documentation that getting up close and personal with the last three years’ worth of your personal bank statements, a business account just makes sense. 

With a business bank account, you can simply release the bank statements to prospective buyers without having to worry about revealing your personal information.

A Small Business Bank Account Helps Protect Your Assets and Your Sanity

If you want to set your business on the road to success, opening a small business bank account is a no-brainer. 

Selecting a business checking account that meshes with your business’s needs can keep your personal assets safe and secure and keep you sane and level-headed when it comes time to pay Uncle Sam.