writing small business checking account

5 Reasons You Need a Business Checking Account

6 min read • Feb 07, 2022 • Katherine O'Malley

Many new entrepreneurs will use their personal bank accounts for paying and collecting money for their business—and I was no different. It seemed like a lot of work to open a bank account, especially before I knew if I had a viable business.

You may be thinking the same way I did. But from my experience, I can give you 5 good reasons to open a business checking account today.

Reason #1: You Want to Monitor Your Cash Flow

Cash flow captures a picture of how money moves in (income) and out (expenses) of a business. Monitoring cash flow lets you see how much money you have—or will have—at any given time.

Now imagine you had just 1 bank statement for all your personal and business deposits and withdrawals. At a glance, could you tell if a deposit was payment from a customer or a birthday gift from your Aunt Betty? As for withdrawals, could you pick out the 1 business expense in a day full of personal expenses?

A business checking account eliminates the confusion. I link my business checking account to Sunrise to view my cash flow report easily online: no more hand-written ledgers or spreadsheets to track my business’s finances. Take a look at how Sunrise and a business checking account work together to give you financial insight into your small business.

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BTW, you can use Sunrise, Lendio’s software for helping small businesses with their accounting and bookkeeping, for free (a pretty good deal, eh?).

Reason #2: You Want to Grow Your Business

Your dream business may start small, but—sooner than you think—you’ll need to take that next step to grow your business.

That might mean signing a commercial lease to gain more production space or securing equipment financing to buy a new 3D printer. Perhaps it’s taking on a business partner who has the skill set to expand your customer base.

A business checking account can help facilitate those steps. Opening one demonstrates that you view your business as a business, not as a fluke or a hobby. It also shows you have enough confidence in your business to make it distinct. That goes a long way with lenders who will be sizing you up as they size up your business. In fact, some financing and lenders will require it.

A checking account for your business also establishes a clear timeline of your company’s financial history, which potential partners will want to see. 

Reason #3: Your Personal Finances Should Be Protected

A business checking account can facilitate growth. Having one shows you have confidence in your business. That goes a long way with lenders who will be sizing you up as they size up your business.

Let’s talk about business liability and personal finances. No one wants to think about the potential for a business lawsuit. However, one could happen, especially if you close your business and still owe money to creditors.

Setting up your business as a corporation is a startup best-practice. It signals that you (the person) are a separate entity from your company. However, that doesn’t guarantee that your personal assets are protected from business liabilities, especially if a court rules your business “pierced the corporate veil.”

Cornell Law School explains that “piercing the corporate veil” might occur if a court decides that poor business practices blur the line between a person and a business. For example, suppose I used only one checking account for personal and business transactions. In that case, it’s difficult to tell what I considered to be personal versus business—the boundary between the 2 is fuzzy, which could make my personal finances part of a business settlement.

To help minimize that risk, establish a business checking account and use it strictly for business purposes. Consider it a crucial brick in the wall between you (the person) and your business.

Reason #4: You May Increase Customer Confidence (i.e., You Look Legit)

A business checking account can increase customer confidence in your business.

Pretend I own a bicycle shop. A customer might be willing to write a check out to me personally to pay the $20 service fee for a flat tire repair. But would that customer be ready to write a $1,000 check (payable to me personally, of course) as a down payment on the high-end race bike that they want? Nope, not likely.

A business checking account reinforces the image of a reliable and legitimate business that customers can trust.

Reason #5: You’ll Even Make Tax Time Easier

“I love taxes,” said no business owner, ever—except maybe tax professionals. That’s why I strive to keep my business tax process as accurate and straightforward as possible.

How does using a business checking account help me accomplish that? It simplifies my tax preparation steps by separating my personal and business finances.

When tax time arrives, I don’t have to guess whether that 6-month-old receipt for printer ink was for business or home use. If it’s a line item on my business checking account statement, then it was purchased for my business. 

Of course, it’s more convenient (and better business) to track your expenses on an easy-to-use accounting platform that can also give you insights into your spending. But if you’re not ready for that, a business bank account is your next best option.

Is Your Business Too Small for a Checking Account?

The U.S. Small Business Association recommends that every business—yes, that includes solopreneurs and creatives such as artists—open and use a business checking account. The major benefits they list include protection from personal liability, preparedness for the ups and downs of business, purchasing power to grow when ready, and professionalism—because optics matter. It’s hard to argue with any of these reasons at any stage of entrepreneurship.

In other words, don’t sell yourself short. 

Your business isn’t too small or too new—it deserves a business checking account today. I’ve been in your shoes and had to battle the “I’ll do it later when my revenue is bigger” thought process.

Sure, it takes paperwork, time, and some bank fees to set up a business checking account. But, as a business owner, I can vouch for the many benefits of using a business account from day one.

Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

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Katherine O'Malley

Katherine O'Malley is a contributor to the Lendio blog. A technology geek at heart, she splits her time between traveling, freelance writing, database administration work, and implementing SEO on her travel blog. In her free time, she loves to research the challenges small-to-midsize tourist suppliers face and find ways that technology can help them out.