Why Sole Proprietors Need a Business Bank Account

Starting a small business is exciting, but navigating all the processes can get overwhelming. Do you really need to separate your personal and business finances? Yes! One of the many benefits is making tax filing easier. But do you need a business bank account? Read on to find out!

Can I Use a Personal Bank Account for My Small Business or Sole Proprietorship?

Legally, you can use a personal bank account for your business as a sole proprietorship. There are many reasons why you should still get a separate business bank account. We'll go over this in more detail later in this article. If you have a single-owner LLC, check out our article Do You Need a Business Bank Account for LLC or Startup for more information.

Does a Sole Proprietor Need to Have a Business Bank Account?

Since you are not legally required to have a business bank account as a sole proprietor, you could use your personal accounts to manage your business finances. However, it's strongly recommended not to do that. There are many benefits to using a business bank account right from the beginning and little downside, other than keeping track of business spending separately.

Why Do I Need a Business Bank Account?

We highly recommend using business accounts for business purposes since it can save you time and money in the long run, and you can avoid issues related to taxes and audits from the IRS, among many others. These are just a few reasons it's best to have a business account.

• Credibility: A business account helps you establish a professional reputation with vendors and partners, and it will help them feel more comfortable dealing with a business that has separate business accounts
• Access special banking features: Many business accounts feature unique tools that can simplify processes, like creating invoices, creating sub-users with specific permissions, audit reporting tools, and much more
• Clear record keeping to manage revenue: Separating accounts helps ensure business funds are used for business purposes and to track cash flow (spending and earning) effectively
• Simplified taxes and accounting: As your business grows, keeping track of all those transactions is easy with a separate account and helps simplify the accounting process, as well as tracking income and expenses that come with running a business
• Tax benefits and deductions: While you have the option to do your personal and business taxes together, you'll need to have clear records to take advantage of any tax benefits and deductions you might be able to claim for your business
• Future financing opportunities: A dedicated account shows your company's financial track record and can help you secure future funding like business loans or lines of credit to grow, buy equipment, and more

When Should I Open a Business Bank Account?

If you have a business, you should have a business bank account. Open yours before you begin to accept or spend money, as that account will be critical when you need to show business spending and income. As time goes by, you'll also use it for transactions like vendor payments and payroll and to receive customer payments. Aren't sure where to start? Find out in our article What is Needed to Open a Business Bank Account.

Separating Your Business and Personal Finances

After your business is established and you have an EIN (Employer Identification Number) or you're all set to use your Social Security Number as a sole proprietorship, open a business bank account and apply for a business credit card. Then, you can begin accepting payments through your business bank account and spend using your business account or business credit card. Stay vigilant and only use your business-related accounts for business purposes!

WaFd Bank is Here to Help

Our knowledgeable business bankers are available to help you manage success and have the expertise to become a trusted advisor to you and your team. With products that grow with your business and comprehensive tools to seamlessly manage it all, WaFd Bank is built for business. After over 100 years, we know what it takes to help you succeed, from start to legacy. Visit your local branch or give us a call at 800-324-9375 to experience the difference WaFd Bank can make for you.

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