If you’re a small business owner there’s probably a lot of overlap between your business and
personal finances. It can appear much simpler to keep just one bank account – money from
clients comes in, and all your expenses, business and personal, go out. However, there are
several key reasons why you should separate your business finances and personal finances,
including the fact that it will help protect your personal assets and streamline your tax record-
keeping.

Here are the top three reasons why you need a business bank account:

1. It keeps the “corporate veil” intact to protect your personal assets.
Many small business owners form an LLC (Limited Liability Company) or Corporation because
it helps shield their personal assets from things that might happen in the business – for
example, if the business is sued or can’t pay its debts. This is known as a corporate veil since it
puts some separation between the business owner(s) and the business.

In order to keep that personal liability protection, you need to properly maintain your
LLC/Corporation and that includes keeping a sharp line between business and personal
finances. Maintaining a business banking account is an important step to ensure that your
business is its own entity and separate from you, the business owner.

In case your business is ever sued, the plaintiff may try to pierce your corporate veil by
showing that you haven’t maintained your Corporation/LLC to the letter of the law. In this
case, they can go after your personal assets. This is why it’s absolutely critical for LLCs and
corporations to keep business finances completely separated from the personal.

2. A separate account helps avoid tax time woes
A combined personal/business account is messy, making it harder to organize your books
come tax time. You may find yourself wading through all of your past year’s transactions,
including trips to the grocery store, to find business expenses to write off. Having separate
accounts streamlines your record-keeping – saving you time and ensuring you won’t miss any
legitimate deductions.

3. A banking account boosts your business’ legitimacy
When you’re running a business, it can look a tad unprofessional to pay your contractors with
a personal check or have your clients write a check to you as an individual. Will this ever be a
deal breaker? Probably not. But, having a dedicated business banking account can send the
right signals as you scale your operations and evolve from freelancer to business owner.

As a side note, if you’re running your business as a sole proprietorship, you don’t legally need
a separate bank account for your business, but it’s still a good idea for the second and third
reasons. In addition, having a business banking account can help make your case to the IRS
that you are indeed running a business and are entitled to deduct your business expenses
should you ever be audited.

How Can We Help You Prosper Today? PBCi is here to provide guidance and resources to help
keep your business at its best. Request your Free Consultation today.