Key Differences Between Business Banking and Personal Banking

Here comes another year that will surely bring a new set of changes and developments for you and your business. As you grow, so does your business, hence you might find yourself in the middle of it all, thinking about transitioning things over or scaling up and making upgrades with regards to some factors, like handling your finances.

If you are a sole proprietor, you might be using your personal account to handle your business’ or your company’s finances. But as your business earns more and everything is picking up at a faster pace, you’re considering switching over to having a business banking account. But is it really necessary? Is now the right time? What’s the difference between personal banking accounts and business banking accounts? What are the benefits?

Let us help you answer all these questions that might be running around in your mind. Take this quick read as a guide so that you can make an educated and confident next step.

What’s the difference?

Personal banking accounts are not technically for business use. They help individuals hold and manage their personal funds. With personal accounts, you put your own money into it, like your paycheck, and use it for personal bills and expenses.

Technically, you’re not required to have a separate business bank account as a sole proprietor, but it is preferable to have separate accounts for yourself and your business. The best time to open a business account under your business name would be as soon as you start handling business transactions.

A business banking account helps small business owners hold and manage money made within a business. A business bank account typically includes a business checking account and a business savings account. A business checking account allows you to write and deposit checks, transfer money electronically, and use a business debit card.

Having a business account will help you separate savings from working capital and earn interest on the funds you set aside. Separating personal and business expenses is essential for tax purposes because you can only claim amounts related to your business. Also, if you’re registered as an LLC or corporation, you’re required to have a separate bank account for business finances.

What are the benefits of switching over to business banking?

There are pros and cons for different types of banking accounts, especially since everyone’s preferences are different, but here’s a list of advantages or benefits from an objective standpoint:

1. You will be able to compile financial statements and track financial transactions more efficiently

2. You will be able to easily extract relevant information for tax purposes

3. You will be able to earn interest on the funds you save

4. You will be able to plan ahead for emergencies or cash flow challenges

5. You will be able to showcase a business that’s healthier financially, which is appealing to lenders

Ultimately, the choice is yours, but what you can do to start taking steps in the right direction would be to check your business’ financial health status and find banking options that would best fit your needs. Plus you may even consult with or ask for the help of a trusted professional to provide some insight on which path you should consider taking.