- 7 17 Staff
Business Checking Accounts: Why Are They Important?
If you own a business, you may be wondering if it’s worth it to have a separate business checking account. It may seem easier to just use a personal checking account for your business purposes to avoid fees. However, there are certain risks associated with this approach. Let’s explore the ins and outs of this type of checking account and see if it’s worth it for your business.
Advantages of a Business Checking Account
Opening this type of account has several advantages, including:
Ease of Organizing Finances
Having multiple checking accounts is a hassle, right? Wrong. If you choose to keep using your personal account for your business, your business transactions will be sandwiched between your streaming service payments, your daily coffee shop visit, and your groceries.
This makes it incredibly difficult to determine how much your business is spending and receiving and makes tax season even more difficult than usual because you need to sift through personal transactions to find ones related to your business. Additionally, keeping your business and personal checking accounts united can potentially cause you to run into legal difficulties because it looks like you and your business are one and the same rather than separate entities.
With a business checking account, you’re better able to view and manage your cash flow so you can monitor how your business is doing financially. You can track your income and expenses, see if you have any outstanding payments, and create your business budget accordingly. It’s a lot less work and less stressful than it is to have everything in one account, trust us. Plus, you’ll be able to have a true picture of your business accounts.
You don’t want to give your customers red flags and stress when they see your personal name come through in their checking statements instead of your business name. They’re going to spend a lot of time trying to figure out whose name that is and why it’s in their statement. Even worse—they may dispute the charge. If customers are writing a check, they may also feel uncomfortable making it out to you personally instead of to a business name. You don’t want any of these things to happen—you want repeat customers, after all.
Having a separate business checking account lends professionalism and credibility to your business. Clients and customers will be more likely to trust your business when your transactions move through their accounts in your business’s name.
Using your personal account instead of a business account could also affect your tax audits and legitimacy. For example, if your business isn’t showing profits, the IRS may categorize your business as a hobby. If this happens, you wouldn’t be able to deduct expenses on your tax return.
Preparation for Future Growth
With a business account, your options for future growth open up whether or not you intend for your business to grow. This can help you later if you decide to apply for future loans or business credit cards.
If your business grows, having a separate checking account will make it easier to handle financial accounting—such as employee payroll—as well as create a better plan for future growth.
One of the most important advantages of a business checking account is the separation between you and your business. If something goes wrong or someone tries to sue your business, you’re protected from personal liability because your assets aren’t mingled.
If your accounts aren’t separate, it may seem as though your business isn’t a separate entity. For additional protection, register your business as an LLC or other business entity. It’s important to note that merely registering your business won’t provide liability protection; it’s also essential to keep your accounts separate.
Choose a Business Account that Meets Your Needs
Now that you know the importance of business checking accounts, it’s important to explore financial products that will meet your needs and help you plan for future growth. 7 17 Credit Union offers a number of resources such as checking, savings, and other financial products that can help your business thrive.