Taking the plunge with a business bank account
By Katelyn McCullock, Agricultural Economist, American Farm Bureau Federation


Photo by Andrew Spearing / CC by 2.0

You’ve launched your business…have sales, customers, printed business cards, maybe even profited a little. But have you separated your business expenses from your personal expenses? Chances are if you’re just starting out you’re probably operating your business transactions out of your own personal checkbook.

Opening a business bank account is a good first step to legitimize your business in the real world (we’re talking people beyond your friends and family). It helps streamline your accounting process and increase professionalism in a way that ordering 500 business cards cannot.  Here are some issues to keep in mind as you consider opening a business bank account.

PROS

  1. Faster to file your taxes. Running your business expenses out of an existing account might seem like less of a headache but often it just delays your headache until tax season. Establishing a business account separate from your checking account helps you to quickly identify expenses that are business related rather than personal. It can also make it easier to verify a business expense in the event of an audit.
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  3. Establishes relationship with bank. Even if you are not thinking of taking a loan out now, it’s not a bad idea to start a relationship with your local bank now. Chances are you will need a business loan to expand or purchase equipment in the future. Building that relationship with your local bank representative can help make the process of requesting a loan from the bank much easier when the time comes. A bank rep can also let you know about other business services the bank offers such as issuing payroll checks or accepting credit card payments.
     
  4. Increases professionalism with customers.  If you are running your business out of your checking account, all your business transactions will be under your name. To a customer, that means writing a check or charging a credit card to you personally rather than your business name. That can be off-putting to customers who want to interact with legitimate business owners. Having a business account adds a level of credibility that you can’t get from a fancy business card.


CONCERNS

I don’t say “Cons” here because I think having a separate business account is overall a good idea. But here are a few reasons I hear from folks who don’t want to make the move to a separate business account.

  1. More work.  Multiple accounts means more decisions. Keeping it all straight can be stressful when you are first starting out, particularly if you aren’t to the point where your business is living on its own and has designated accounting staff. However, it does allow you to do a lot of things that will eventually take stress away such as designating check signing authority to a manager or accepting credit card payments.
     
  2. More expensive.  It’s true that some banks will limit your transactions or deposits, or charge fees for low minimum balances. However, shop around! Today there are lots of options both online and offline. Look into the services you would be looking for in the future and try to find the best deal.  There are also different options depending on entity structure.

I recommend even if you are in the early stages of your business to consider using a separate business bank account. The earlier you start, the easier it will be to set up and manage. As with many business decisions, it is important to do your homework and find the bank and business account that is best for you.

 

Katelyn McCullock is an agricultural economist working for the American Farm Bureau Federation in Washington, DC. Katelyn focuses on livestock-related issues and policies. Before coming to DC, Katelyn worked with farmers and other rural business owners in Maine at Farm Credit East.