When first starting out in business, especially those businesses that are personally funded by the small business owner, it can sometimes seem unnecessary and inconvenient to establish a separate bank account for your business. And, depending upon the legal form of your business, it is not required that you keep your accounts separated. As long as your records are accurate and complete for tax purposes, it is perfectly acceptable for sole proprietors to manage their business expenses through their personal account. However there are many reasons why opening a business account will help you establish your business and also help it to grow and prosper.
One primary reason for establishing a business account is bookkeeping. Keeping your business expenses separate from your personal expenses is much easier and less time-consuming when they are handled through a separate account. This also provides a much more easily accessible audit trail, avoiding confusion and stress at tax time.
If you want your business to be taken seriously and wish to establish it as a professional entity, your customers should not be required to write checks to you personally. While some customers may find this acceptable, you may also lose potential customers who may not trust your commitment and professionalism if their perception is that you have not bothered to make the business "real”. The customers who do agree to work with you may see you as a freelancer or hobbyist rather than a professional, and expect that your prices will not be as high as those expected by "professionals” running a "real” business. In this way, opening a business bank account is a crucial step toward legitimacy, professionalism, a higher caliber and quantity of potential customers, and the potential for increased revenue.
Small business owners generally have plans and dreams for the expansion of their business. Perhaps you’d like to own your own storefront or invest in newer, more efficient machinery. Your local banker can be a great resource in the realization of those dreams. But the bank also needs to see you as an established, responsible, successful business in order to believe you are a good investment. Opening a business bank account is just the first step in your relationship with your banker, but it is a crucial step.
Opening a business bank account does require documentation that your business is a legal entity. Different states also may have requirements for additional documentation, depending upon what type of business you own. But putting together a few documents is such a small task and the benefits you will gain from having a business bank account far outweigh the initial minor inconvenience. Take that first step and it won’t be just your customers, creditors and bankers who see you as a legitimate, professional business; you will too!