When you are starting small, it is tempting to run your business through your personal checking account. It works for a while, and then it gets confusing. The SBA says to open a business bank account as soon as you start accepting or spending money as your business.
What a business account does for you
The SBA lists several benefits:
- Protection. Keeping business funds apart from personal funds offers limited personal liability protection.
- Professionalism. Customers can pay by card, and they can make checks out to your business instead of to you. You can also authorize employees to handle day-to-day banking tasks.
- Preparedness. Business banking usually comes with the option of a line of credit, which can help in an emergency or when you need new equipment.
- Purchasing power. A business credit card can help with large startup purchases and build a credit history for the business.
Which of these a bank actually offers depends on the bank, so ask before you assume.
Separation matters most if you form an LLC or corporation. An SBA blog post explains that a business treated as its own legal entity should be handled that way, and that keeping personal and business money apart helps protect the integrity of that separation. Our guide to choosing a business structure explains the difference.
The everyday reasons
Beyond those benefits, separate accounts save you work. At tax time you will need to show what the business earned and spent. If groceries, fuel, and family purchases are mixed in with equipment and supplies, sorting them out takes hours, and it is harder to explain a charge if a tax agency asks. Clean records also help when you apply for financing, because lenders want to see how a business handles money. See our guides on funding options and SBA microloans.
Types of accounts
The SBA lists the common business accounts as checking, savings, credit card, and merchant services. A merchant services account lets you accept credit and debit card payments. Most new founders start with a business checking account and add others as they grow. A separate savings account is also a good place to set money aside for taxes. Our tax basics guide explains why that habit helps.
When and how to open one
The SBA says you can open a business bank account once you have your federal EIN. Its guide also points out that rates and fees vary from bank to bank, so it pays to compare. On its business name page, the SBA adds that getting a DBA and an EIN allows you to open a business bank account. Our guides on getting an EIN and choosing a business name cover both.
Rural founders may have fewer branches nearby, so look at community banks, credit unions, and online banks. Ask each one the same questions:
- What are the monthly fees, and how can I avoid them?
- Are there limits on deposits, transactions, or cash handling?
- Can I accept card payments, and what does it cost?
- Is there a branch or a support line I can actually reach?
- Which documents do you need to open the account? Commonly that includes identification, your EIN confirmation, and any formation or DBA paperwork.
Keep the wall between the accounts
Once the account is open, deposit business income into it and pay business expenses from it. When you want to pay yourself, move money to your personal account in a clear, recorded transfer. If you occasionally pay a business expense personally, keep the receipt and note it so you can reimburse yourself. The goal is a clear paper trail. Our guide to knowing your numbers shows how to put those records to work.
Your next step
If you have an EIN, call two local banks or credit unions this week and ask the questions above. If you do not have one yet, start there. Then move your business income and spending into the new account as soon as it opens.