There have never been more opportunities for entrepreneurs who wish to be self-employed than there are right now. Though it can seem like a minor detail, your business bank account can influence the success of your business or side-hustle. When most business owners start out, they think about the name of their business, how they’ll find customers, and how they’ll make money. The bank for their business is an afterthought. This is a mistake though since have a business bank account if self-employed provides key advantages that will help keep your business financially healthy and stable. Although every business can be very different, they have one thing in common: it’a wise to consider a separate business bank account.
Let’s look at the advantages of a business bank account for these side hustles and full-time solopreneurs.
Your Etsy shop is a retail business, with many of the same needs as stores on Main Street. You have expenses for supplies, products, shipping materials and costs, and shopping fees. You also have income from product sales, and that money comes from different forms of payment.
So do you need a business bank account for an Etsy business? Technically, it is possible to manage business income and expenses from your personal bank account (although certain banks prohibit it). But you’re making your life much harder for no reason. You’ll need to go back and separate all business transactions for tax purposes. The complexity leaves you vulnerable to tax audits and can cost you opportunities for write offs.
And let’s consider the day-to-day management of your business on Etsy. How profitable is your store? Which items are giving you the best margins? Where are your best opportunities to trim expenses? It can be very difficult to answer these questions if your finances are mixed up in a personal account. On the other hand, a business bank account for Etsy will categorize all of your activities and help you optimize the business for success.
Much like Etsy, Amazon is a retail platform that provides entrepreneurs with an opportunity to sell products. So, yes, you need a business bank account for your Amazon store.
The key difference between Etsy and Amazon (aside from size) is that Amazon handles all of the payment processing for you. So it’s not necessary to have a merchant account in addition to your business bank account. This can save you some money on fees, but it doesn’t change the fact that you need to manage and monitor your finances separately from your personal accounts.
As an Amazon seller, there are a few other factors to consider when choosing a business bank account. Many Amazon sellers do not use an accountant, which means they need a way to track their financial data beyond just bank statements. They’re dealing with inventory, returns, and potentially some cash flow ups and downs. Consider a banking alternative that also provides insights on income, expenses, and cash flow projections.
Second, consider how easy it is to send and receive payments from your business bank account. If you’re selling physical goods, you’ll need to be able to accept payments from customers and transfer money to your suppliers. Some banks make this process easier (and cheaper) than others. And if you’re selling digital products or services, you’ll need a business bank account that can easily connect to PayPal or Stripe.
Ridesharing: Uber or Lyft Drivers
What about ridesharing? Should you have a business bank account to drive Uber or Lyft?
For drivers, the name of the game is business expenses. Deducting gas, mileage, and maintenance expenses from your taxes will make a huge difference in your profit. If all of that money is coming out of your personal account, it will be difficult (if not impossible) to track and document those expenses. If you have a business bank account, all of those transactions will be in one place and easy to reference come tax time.
Another reason to get a business bank account as a rideshare driver is for the perks. Many business accounts come with additional features, like cash back on gas or rewards points for every dollar you spend. These programs can save you money and help you earn more income from your driving gig.
Rental Property Income
If you own a rental property and bring in monthly rental income, that’s considered earnings from a business. That’s because being a landlord comes with lots of responsibilities and costs, like property taxes, repairs and maintenance, mortgage payments, and more. A business account can help you keep tabs on all your expenses so you know exactly how much money your rental property is generating (or losing).
If you have goals to expand in real estate and property management, you’ll want to build business credit. Strong business credit will give you much better options to finance future properties and secure loans that fit your business plan. A business bank account is a requirement in establishing your business credit.
Consulting / Contracting
Do you provide professional services? There are a number of advantages in using a business bank account for your income. That includes services like:
- Legal consulting
- Financial consulting
- Web design
- Graphic design
- Web development
- Speaking engagements
Not only will it help you keep your personal and business expenses separate, but again, there are major tax advantages. When you have all of your consulting income and expenses in one place, it’s easy to see how much money you made (or lost) for the year. And that information is crucial when you’re filing your taxes as a self-employed individual.
There are lots of other reasons to get a business bank account as a consultant, too. Many consultants work with clients who require invoices for payment. Having a dedicated business account makes it easy to track payments and issue invoices without getting your personal finances involved. It also provides credibility—you look far more professional with a business bank account. Additionally, some banks offer fraud protection and other features that can help you run your consulting business more efficiently.
If you make money from photography, whether that’s through wedding gigs, family portraits, or selling your artwork, you should consider a business bank account. That’s because the IRS has specific requirements for photographers when it comes to taxes.
Your photography business likely requires travel, equipment, and other expenses. Depending on the scale of your business, you could save hundreds (or thousands) of dollars at tax time by tracking expenses properly. But in order to take that deduction, you need to have a business bank account and keep track of all your receipts and expenses.
There are other advantages, too. Having a business account will help you build business credit. This way, you’ll be prepared to secure a loan for that drone or lens that will take your business to the next level.
A business bank account is a must-have for any self-employed individual, whether you’re a consultant, Uber driver, or real estate investor. It will help you keep track of expenses, manage your cash flow, and save money come tax time. So if you’re not already using a business bank account for your side hustle or freelance work, now is the time to get one set up. It’s the best way to manage your money and grow your business.