In many ways, it is a golden age of entrepreneurship, with more ways than ever to go into business for yourself. From online selling and ecommerce, to social media content, and everything in between, there are almost endless possibilities for solopreneurship. As you build a side-hustle or income stream, you may be wondering if you need a business bank account for a sole proprietorship.
Legally? No, you don’t need a business checking account for business transactions if your business is not incorporated. But you really should have a business account for a number of reasons.
In this post, we’ll provide an overview of the reasons you need a business bank account, even as a sole proprietor.
The most important reason to have a business account is for tax purposes. It should go without saying that you want to maximize deductions. The best way to do that is to separate business expenses from personal expenses. Tax deductions exist for a reason—your business is supposed to receive them. Put your business in the best position to save money by separating your expenses.
Not only will it help you maximize deductions, but it will also give you very clean records in the event of an audit. The last thing you need is to sort through thousands of business and personal transactions to try to avoid penalties from the IRS.
Build Business Credit
Another important reason to have a business account is to build business credit. This is separate from your personal credit, and it will be very important as your business grows. Establishing business credit can help you get loans, lines of credit, and other types of financing in the future. It can also help you get better terms on those financing products.
The other thing to remember about business credit is that anyone can access your business credit report. That means current or potential partners and vendors can see your credit history to decide if they want to work with you (and on what terms). If you use a personal bank account for your business, you’ll have limited business credit history. Even if you pay your bills on time and manage finances responsibly, your partners won’t be able to see it.
Whether you keep the books yourself or hire someone to do it for you, it’s important to have a dedicated account for business transactions. This will make it easier to see where your money is going and understand your overall financial picture.
In addition to the tax benefits covered above, you’ll be able to make better decisions with accurate financial data. If you’re overspending in a specific category, or if there’s a sudden price increase with a vendor, you’ll spot it quickly without the clutter of personal finances.
Expense management isn’t glamorous, but it’s one of your most important tasks as a sole proprietor. Make it easier on yourself with separate accounts.
Unfortunately, your personal assets are at risk if something goes wrong with your business as a sole proprietor. This is why many sole proprietors convert their business to an LLC.
But even as an LLC, you need to take precautions to separate your business from your personal assets. If you have a business bank account, you’re already on track to protect your personal assets. It is a legal requirement if you want to form an LLC, and it will help protect your personal finances in the event that your business is sued or faces other legal problems.
Last but not least, having a business bank account can help you appear more credible to customers and partners. If you’re still running your business out of your personal checking account, it may be time to upgrade.
A business bank account sends a signal that you’re serious about your work. It shows that you’re organized and have taken the time to set up separate accounts for business and personal expenses. You can put your business name on checks and invoices, and signal to your customers that your business is legitimate. This can go a long way in building relationships with customers, vendors, and other partners.
As a sole proprietor, you’re not legally required to have a business bank account. But there are many good reasons to open one anyway. From organizing your expenses to building a professional appearance, a business bank account will give you numerous advantages.
Open a zero-fee business account with Viably today.