Do I need a business bank account? Benefits, requirements, and how to choose

When you run a business, it’s a good idea to separate your personal and company accounts.

Having a separate business account can be useful for tax and audit purposes. If all your money is in one place, it can be tricky to figure out your business expenses and cash flow.

But do you really need a business bank account?

Do I need a business bank account?

Do you have to have a business bank account?

Not every type of business must have a business bank account.

As a sole proprietor or freelancer, you aren’t obligated to create a business checking account. That said, while it may not be necessary, it’s considered good business practice to keep a separate account.

The IRS recommends setting up a business bank account since it makes filing taxes simpler.¹

One case where you do need a business bank account, is to open a merchant account. Personal checking accounts will not be accepted, regardless of whether you are an LLC or corporation.

Without a merchant account, your business cannot process card payments. This makes merchant accounts particularly important for online products and services, as well as e-commerce businesses.

If you’re looking to get a business loan, then a business account may speed up the approval process. The loan provider will review the business cash flow and income, which is clearer with a business account.

Do I need a business bank account for an LLC?

Owners of limited liability companies (LLC) don’t have a legal obligation to open a business bank account.²

Regardless, there are reasons why it might make sense for LLC owners to set one up.

Owning a separate business account can help maintain a professional image for the LLC. It can also protect the owner’s personal assets. For example, in case of a legal dispute in which another party is looking for financial compensation from the business.

Do I need a business bank account for a sole proprietorship?

Sole proprietors aren’t legally required to own a business bank account. Yet, to reiterate, it’s a good idea to keep finances separate.

If only for making it easy to manage personal and business funds, it’s often worth it for sole proprietors to set up a business checking account.

🔍 Read on to find out:
The benefits of a business account Business account requirements How to choose an account How you can manage international finances with Wise

Benefits of a business checking account

A business checking account is intended for business owners. It serves as a way of differentiating business and personal finances. Opening an account can save you time and energy when tax filing season comes around, or if you’re ever audited.

When you open a business checking account, you can also see if it is compatible with your accounting software. Many business accounts allow users to connect to software such as QuickBooks, or Xero. This can save hours on admin when it comes to tracking finances and sending invoices.

Here are some other benefits:

• Easily track down business transactions and expenses;
• Calculate tax deductions correctly;
• Access to business credit cards;
• Receive payments via credit and debit cards.

Take control of your business finances
with the Wise Business account

What do I need for a business bank account?

To open a business bank account, you’ll need to gather the following documents, certificates, and statements:

• Employer Identification Number (EIN);
• State-issued identification;
• Business formation documents;
• Ownership agreements;
• Business license;
• Certificate of Assumed Name;
• Monthly credit card revenue.

🔍 You can also read the full guide to opening a business account for more information.

How to choose a business bank account

To choose the right business bank account, there are various factors worth considering.

To assist you in the search for the business account that makes the most sense for you, here are some factors to look out for:

Fees and opening deposit

While some business accounts require monthly fees or opening deposits, others may not.

As such, it’s important to determine what’s best for your business. Can you handle ongoing fees, or would you prefer to have an account that’s free to set up and/or maintain?

Businesses with higher incoming cash flow may find it easier to meet minimum balances in order to avoid account fees. Smaller businesses, however, may find the account fees eating into their cash flow if they are unable to meet the minimum balance.

Choosing the most suitable option from the start will save you time and hassle down the line, when switching business accounts as an established business becomes more complicated.

Transaction Limits

Transaction limits can get in the way of your business needs in some cases, so make sure you read the fine print. Some banks will offer some fee-free transactions before charging per transaction. Others allow unlimited fee-free transactions.

Checking the transaction limits before opening an account is essential if your business regularly makes high amount transfers. Limits can cause delays in payments to suppliers, for example, which will not only affect your sales, but also your relationship with suppliers. Not to mention the hassle of getting in touch with your business account provider each time you need to increase your limit.

Interest rate

Some business accounts allow you to earn interest on your income. For interest-accruing accounts, though, there will likely be a minimum opening deposit requirement.

It's also important to review whether you'll need to lock in your funds for a set amount of time, or if you can get instant access. Smaller businesses may prefer instant access interest accounts, as having to lock in an amount can affect their cash flow, for example.

Customer support

If you require 24/7 customer support, then make it a priority when you look for a business account. Otherwise, find an account that’s supported with the form of communication you’re most comfortable with.

🔍 Discover the best online bank accounts, and see which one is the best fit for your business.

Discover the Wise Business account: Easy to set up, easy to use

If you’ve found the answer to ‘do I need a business bank account?’ is yes, then you’ll want to find a great business account next.

The Wise Business account can be a smart option for businesses who send or receive international payments.

Wise is not a bank, but a smart online banking alternative. With the World’s most international account, you can do business around the globe with ease. Send and receive payments at the mid-market rate, and easily add your Wise account details to your QuickBooks invoices to get paid faster - no matter the currency.

It's also easy to open and manage your account online, so there's no need to book appointments or wait in line to get your account.

Register with Wise Business today

The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to 160+ countries.

Some key features of Wise Business include:

Major local account details to receive international payments with ease No monthly account fees just a simple one-off fee for account details Receive payments from e-commerce platforms (such as Amazon or via Stripe). Create invoices using the Wise invoice generator or invoice templates. Accounting integrations, including a QuickBooks Bill Pay connection. Bill payments will be synced, matched, and categorized in QuickBooks for simple reconciliation. Batch payment options. Fast payment of up to 1,000 people.

Read the guide on how to open a Wise Business account

Conclusion: Do you need a business bank account?

From a legal perspective, you may not need a business bank account. Yet, from a tax and accounting point of view, it’s a wise choice to keep your personal and business finances separate.

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Sources:

1. Small Business Tax Workshop
2. Is an LLC Required to Have a Separate Bank Account? | legalzoom.com

All sources checked January 20, 2022.