Question of the Day: Â I just started my business and what I really want to know is… do I REALLY need a separate checking account for my business? Â ~Anonymous
Do I Really NEED A Separate Checking Account For My Business?
Answer: Â My answer is two-fold… one from the business/accountant perspective and one from the practical perspective.
In short… YES, you do need a separate checking account for your business and here’s why:
From a business, accounting and practical perspective, it’s just easier to keep business and personal separate. Â It’s easier on you from a tracking perspective, you accountant will definitely thank you and things won’t get all jumbled up in your mind making it a practical choice.
That’s my short answer… and here’s my long answer.
For practical reasons, you started a business… now act like you are in business! Â Most banks offer free business checking accounts even if you are a solo proprietor using a DBA (doing business as). Â So no excuses are welcome here for not having a business account. Â Here’s a quick tip for you: Â open a business checking account at the same bank where you have your personal account. Â This way, you only have to go to one place to take care of your banking tasks.
For accounting and business reasons, it will be easier on yourself (or your bookkeeper/accountant) if you kept things tidy, in order and separate. Â It’s easier to track income and expenses if you don’t muddy the waters of your business finances with those of your personal finances. Â Don’t get me wrong, it can be done but do you really want to have to constantly take the extra step of determining if each and every deposit is business or personal BEFORE you can actually enter the data into your accounting system? Â If your answer is no (which I’m going to assume it is)… you need to keep things separate.
So when does it go beyond personal preference? Â When do you absolutely, positively need a separate business checking account? Â When you are doing business as a DBA, as a LLC, S Corporation or C Corporation. Â Basically whenever you have taken steps with your state (or the state of your choice) and created a legal business entity separate from yourself.
If you have additional questions about why you should have a separate business checking account or if you would like us to answer your question here on our blog, contact The Common Cents team.
Yeah, I got it right!Â
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Great article Joyce – we ALWAYS tell clients to get a separate account because it is a business and should be separate. But we also had a client who was audited last year and because he did not have a separate account (he would not listen to us about that) and had a fairly good business for the year (over $600,000 in sales), the IRS went through his personal checking account and any deposit our client could not account for was considered business. He ended up with a $25,000 bill from the IRS. And he was a Schedule C, no LLC or anything. We drill this into all of our clients at this point, especially when we get ones that have just started their business.
Thanks Bobbi. I appreciate you coming by and sharing WHY this is so important!
Ok i will have a very small business on the side cleaning semi trucks. My brother gave me this business and I think it will only make approx. 5000 a year. I plan on getting a separate checking account to pay the employees and buy supplies etc. Do i need to have a business name and a tax ID number? I thought maybe I could use my social security number. HELP
Hi @kathymoreheadnewburn:disqus
Before we talk shop… Take a deep breath. It will be fine. And congrats on taking of the business from your brother.
First, how long did your brother operate this business? Did he have any of these things in place? Like the state filed business name, tax ID number and bank account?
Second, how did he transfer ownership? Did he just transfer the list of clients to you and you’re taking over where he left off?
Third, assuming “no” to the first question… I would seek the counsel of an attorney. I want you to be sure that you cover all of your legal bases.
Fourth, in the meantime, you can get file for a “trading as” or “doing business as” – and open a business account using that.
The main point is that you want to have an account separate from your personal finances.
Let me know if you have any followup questions.
I like your tip about opening a business checking account in the same place that you have a personal account. My brother and I are opening a bakery right now, but we don’t have a separate account for the business yet. We will be sure to do that right away so that we can have an easier time with bookkeeping.
Excellent news, Sandra. It will make things so much easier in the long run if you do this from the very beginning of your business journey. Best wishes to you and your brother. Much success!
I already have an LLC Business but have file for a DBA. Do I run everything under the LLC Business name especially if I need another DBA later on. I want to funnel all proceeds to my LLC Business name. Can this be done?
I would use the LLC for your banking and merchant accounts – it’s really your LLC DBA XYZ name…