Why should I open a small business bank account?
It’s easy to put off the task of opening a business bank account. Opening a new bank account isn’t the most fun and interesting chore, and opening a business account, specifically, might seem confusing and overwhelming.
Don’t put it off too long, though — there are many important benefits to having a separate business bank account. From managing cash flow to enhancing your professional image, a dedicated bank account can be a valuable tool for your business.
How does a business bank account help me manage cash flow?
Cash flow is the amount of cash that’s moving into and out of your business, and it’s a window into your business’s health. It gives you, at a glance, the knowledge you need to make informed business decisions.
Often, your expenses and revenues are not in real time (for example, it might take a few days for a client to pay the invoice you sent them, or your vendor may give you a couple weeks to pay a bill). A business bank account gives you the ability to see where the business stands in terms of actual income(versus accounts receivables) and actual expenses (vs accounts payables) at any given moment in time.
If you don’t have a separate business bank account, it’s almost impossible to determine cash flow because your business transactions will be mixed in with personal ones.
How does a small business bank account help with record-keeping?
A separate business bank account makes it easier to keep financial records, which in turn can help you obtain insurance, legal certifications, and any licenses that are required to operate in your industry.
For instance, say that your business is required to have a contractor’s license. In order to obtain a contractor’s license, state contractors boards may require financial statements showing the financial health of the business. If your business does not have a separate business account, it may be challenging to supply the proper documents and records.
Clear, well-maintained financial records will also help you manage your books and file your taxes.
How can a business bank account protect me from personal liability?
If your business is formed as an LLC, corporation, or limited liability partnership, it’s considered a separate entity in the eyes of the law. This separation, called the “corporate veil,” protects business owners from being personally liable for business debts.
To maintain the corporate veil and protect yourself from personal liability, you need to treat your business as a separate legal entity. If you’ve commingled your personal and business assets, and someone sues your business for debts, you’ve exposed yourself to the possibility that a court may “pierce” the corporate veil and allow your adversary to collect a judgment against you personally.
Basically, courts may reason that if you haven’t treated your business as a separate entity, they won’t either — potentially leaving you on the hook for business liability. Not a good thing. A business bank account can help you stay protected from personal liability by maintaining the separation between yourself and your business.
What are some features and advantages that business accounts may offer?
Business bank accounts are designed for the needs of businesses, so they often include extra features that personal accounts lack. For example, Azlo accounts come with in-app invoicing and ACH payments, two features that are useful for many small businesses (and less useful for most individuals).
A business account will also allow you to accept checks in your business name, which is much easier — and feels more reputable — than always asking your customers to write checks to your personal name.
What’s the best type of bank account for my small business?
It really depends on what features you need. If you’re looking for a fee-free account that is easy to set up and easy to use, an online banking solution like Azlo could be the right fit.
That said, if you have a cash-heavy business, an online bank account probably isn’t the best solution — a bank with convenient local branches where you can easily withdraw and deposit cash is probably a better fit.
Ultimately, making the right decision comes down to carefully accessing your needs and priorities and then researching the alternatives.
