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Why You Need a Small Business Bank Account as a Sole Proprietor

As a sole proprietor, you might feel like work and life mix with each other frequently. As a result of this dynamic, it’s tempting to handle all of your finances—business and otherwise—through your personal bank account. But resisting this temptation and setting up a business bank account for your sole proprietorship comes with many benefits.

We’ve compiled the four main advantages of having a business bank account as a sole proprietor so that you can get an idea of why this financial step is so important to take:

Credibility

Having a business bank account as a sole proprietor demonstrates to your clients that you run a legitimate business. Every time you need to set up ACH payments with a client, you can provide them with your business bank account information. This, as opposed to the appearance of a personal bank account, shows that you take your finances—and therefore your sole proprietorship as a whole—seriously.

Plus, having your name attached to a formal business bank account will make it easier for clients and creditors to trust you in the first place. In the same way that a bank statement mailed to your address can provide proof of residency, details for a business bank account can provide proof that your sole proprietorship is an actual business.

Asset Protection

Separating your personal finances from your business finances with a business bank account allows you to protect your personal assets. According to Investopedia, commingling personal finances and business finances puts your personal finances at risk for business liabilities.

Keeping your business finances separate in a business bank account will help you to draw a clean line between your business and personal finances. As a result, you’ll be able to more effectively protect your personal assets in the event that you owe money on behalf of your sole proprietorship.

Of course, there are a host of other small business legal considerations wrapped into such circumstances, but opening up a business bank account for your sole proprietorship will help set you up for success.

Business Tax Filing

One of the most concrete benefits of opening a business bank account as a sole proprietor is the ease it brings to the business tax filing process. Every year come tax season, sole proprietors can claim deductions for most of their business expenses. But having your business expenses interspersed throughout your personal bank and credit card accounts will make business tax return filing a headache.

Setting up a business bank account as a sole proprietor means access to a dedicated business debit card for your business expenses. Plus, you can access business credit cards and pay your bills from a business bank account. When tax return season rolls around, all of your business expenses will be tidily arranged for you through your business bank and credit card accounts.

Credit Card Acceptance

Finally, if the nature of your sole proprietorship means that clients and customers want to pay you with credit cards, you’ll almost certainly need a business bank account.

Most payment service providers will require you to have a business bank account for you to access a business account and credit card processing capabilities. So, if you want your clients to have the option to pay you with credit—whether in-person with a card reader or online through a payment gateway—then you’ll need a business bank account to do so.

Why You Might Hesitate to Get a Business Bank Account as a Sole Proprietor

There are a couple of reasons why some business owners need to be convinced to get a dedicated business bank account. It’s true that many sole proprietors don’t want to go through the hassle of finding the right business bank account. Even if you do find the right one for you, the process of setting it up involves paperwork and logistics that you could otherwise avoid by continuing to use a single personal-and-business bank account.

In addition, business bank accounts sometimes come with small monthly services fees. These fees are easy to avoid—most accounts will waive the fee if you maintain a certain account balance. However, that balance is yet another thing you’ll need to tend to, and adding another moving piece to your finances might be too much for you.

Despite these factors, the advantages of a business bank account typically far outweigh the disadvantages. Plus, most national banks, community banks, and online banks offer business bank accounts for sole proprietors, so there are plenty of options to choose from.

The Takeaway: Small Business Bank Accounts for Sole Proprietors

Now that you’ve made it through this rundown of the main advantages—and disadvantages—of opening up a small business bank account as a sole proprietor, you’re more than prepared to take the next step.

The way we see it? The advantages of having a business bank account for your sole proprietorship far outweigh the potential disadvantages. At the end of the day, it will be up to you to decide if, or when, you’ll make the leap.

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Priyanka Prakash
Priyanka Prakashhttps://www.fundera.com/
Priyanka Prakash is a senior staff writer at Fundera, specializing in small business finance, credit, law, and insurance. Priyanka's work has been featured in Inc., Fast Company, CNBC, and other top publications.

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2 CONVERSATIONS

  1. I can’t imagine why anyone would want to mix their personal banking and business banking together. There is every reason to keep them separated. Tax reporting, accounting clarity, personal safety, and professionalism is only the most obvious. If you can’t afford to keep a minimum balance to avoid fees, or if you can’t manage two bank accounts you probably don’t have any business being an entrepreneur at this time.

    • You make a good point, Ken. I think the problem is that a lot of people don’t know why it’s so important to have a separate business bank account. Or, if someone has a side hustle as a business or only operates their business part-time, they might not think that they need a business bank account. Hopefully, articles like these will help entrepreneurs recognize the importance of tracking business finances separately.

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