Why your business needs its own bank account

One of the simplest things you can do to make your business feel more organized is to open a separate business bank account. Once established, and once your business income and expenses are run through this account, you will have a clearer picture of how your business is performing. Some examples of transactions you would include in your business account:

The above list is only partial, and you may have very different additional expenses depending on the type of business you have.

Small service and creative businesses are normally structured into one of two categories; the sole proprietorship or the LLC (Limited Liability Company). Of course, there are other possible structures, including partnerships and corporations, but for the most part, if you are a massage therapist or art teacher, you will probably be considering one of these two. For both the sole proprietorship and the LLC, it is important to establish a bank account that is solely dedicated to the business. Some of the reasons why are discussed below.

Since your business is not a separate entity from you in this case, you might be wondering why you should still have a separate account for your business. There are no legal requirements for you to have a separate account, but the time you will save while figuring out your income, expenses, profit, and taxes will be significant. Even if you establish a separate savings account that is attached to your personal checking account, for example, it is better than having no separation at all.

LLCs are specifically formed to separate your business from any personal transaction. In order to keep the legal protection offered by an LLC, personal money should not be mixed with business money. Keeping an account dedicated to business will help keep you legally protected. In addition, most banks will require you to open a business bank account to operate your LLC.

You want to clearly see how much money comes in, how much goes out, and whether you have enough to keep afloat, at the very least. It makes it easier to budget; saving for taxes, expenses, and your own pay is possible when you have a clear view of what is coming in. Having to wade through several unrelated personal transactions to get to see the one that relates to your business is not a good use of your time. Even if your bank automatically categorizes your money into different categories. Errors happen, and errors can be big.

Do you want to be able to pay yourself consistently? Save enough for taxes during the months before you file them? Take an opportunity that might require financial outlay?

Allowing personal purchases to interfere with business purchases creates unnecessary confusion, and keeps the stress levels high. Don’t do it.

It is much easier and less stressful to be organized from the beginning than to have to fix problems later. Keeping your business money in a separate, dedicated bank account allows for:

Anything you can do to reduce cognitive load and stress-inducing activities is a good thing when it comes to money. Developing and keeping good routines are the foundation of your calm business routine.

There are a few steps to follow to set up your business bank account. Before you visit a bank or apply online, gather all of your relevant documents, such as:

Though the above list is fairly comprehensive, you might want to contact your chosen bank to see what documents you need (or visit their website; sometimes banks publish a list of documents they want to see).

Second, choose a bank that you are comfortable or familiar with, and also has the fee structure (or no fees) that you prefer, and open a business checking account at the very minimum. Consider also opening a savings account at the same time.

Third, move all of your new business income and expenses into that new checking account, and begin operating solely from there.

You don’t have to get everything “just so” before you begin organizing your business finances. Once you establish your separate business bank account, you will give yourself the ability to develop good money habits. Good money habits will then allow you to run your business more intentionally. I encourage you to take the first step and open that account.