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Business bank account vs. personal: When to make the switch

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A business bank account may not be the first thing that comes to mind when you think about running a business. You've already got a lot on your plate, all of which makes the balancing act between your business and personal life more difficult. There's branding, marketing, inventory management, sales, staffing — the list goes on and on. One of the main things that concerns small business owners is finances.

Among the many finance-related issues you'll need to tackle is figuring out where to store your money. While a sock drawer or piggy bank worked as a kid, things are a little more complex when you're running a professional business. You need to store your money in an account that will best serve your company's financial needs and ensure you're not misspending and squandering your earnings. This is where a business bank account comes in.

What is a business bank account?

On the surface, business bank accounts are fairly straightforward. They allow you to store your money in a checking account, accrue interest (in some cases), and perform basic bank functions: initiate and receive wire transfers, get a debit card or credit card, use online banking and mobile banking, and so on.

Most importantly, business bank accounts give you a way to keep your business finances separate from your personal finances. Separating your finances is a good practice to follow, as it makes filing taxes easier, ensures an easier time if you're audited by the IRS, and prevents irresponsible spending. Because of this, a business bank account should be one of the first things you set up upon starting a business.

Beyond the above features, there are some additional business bank account perks that can help set your business finances up for success.

Personal accounts vs. business checking accounts

Many early business owners keep their business finances in their personal bank account. A personal checking account generally allows you to have a credit or debit card, write checks, and perform transfers. Beyond these features, there are some additional functions common across personal accounts: 

  • Monthly interest: Some personal accounts will accrue monthly interest. This is especially true if it’s a savings account, but not unheard of for premiere checking accounts.
  • Digital wallets: Many modern personal accounts have digital wallets, which allow you to pay using apps on your phone.
  • Direct deposits: Virtually every personal account has the option to receive direct deposits. This allows account holders to opt-out of a paper check or cash deposit, and receive their pay digitally.
  • Paperless statements: Most accounts allow users to receive paperless statements. This helps the environment, and lets people check their account balance anytime they need.

These features may sound like enough for new business or sole proprietorships. However, business bank accounts will offer these features and more. And, opening a business account can offer benefits to even the smallest startups.

Business bank accounts go above and beyond personal checking accounts by offering: 

  • Multiple business credit cards: Many business accounts allow you to have multiple credit cards or business debit cards. These can be useful for team spending, especially in the event you need to send an employee on a business trip. A good business credit card will allow you to set limits and control how much employees spend.
  • Lower (or no) monthly fees: It's not uncommon for personal accounts to have monthly maintenance fees. Business accounts may have monthly fees in some cases, but many are fee-free.
  • Low-cost wire transfers: In many cases, business bank accounts offer low-cost or free wire transfers. This can be useful for businesses involved in long-distance sales or handling multiple accounts.
  • Easier business invoicing: Most business bank accounts either offer native business invoicing or integration with an invoicing software. This makes it easy to bill clients and customers.
  • Improved interest rates: Many business accounts come with opportunities for financial growth through interest. This is especially true for premier savings accounts, which often require a high minimum balance.
  • Access to merchant services: It's increasingly common for financial institutions to offer unique merchant services, such as POS systems and eCommerce options. Oftentimes, these services are only available when you have a business account with the institution.
  • Reduced transaction fees: Transaction fees are fees typically attached to any kind of sale made by a business. Much like ATM fees but on a grander scale, these can add up. Fortunately, there are business bank accounts that have reduced, or zero, transaction fees. For high-volume businesses, this can mean the difference between paying 5% on every transaction, or 1%-0%. That adds up, quickly.
  • Fewer fees in general: While business accounts often have account fees, they're typically lower than personal accounts. Account fees can include minimum daily balance fees, monthly balance fees, overdraft fees, and even monthly service fees. But with research, it's possible to find business accounts with few, if any, fees. 

There are numerous features that set business bank accounts apart from personal accounts. These features can vary depending on the bank you go with, so be sure to research what their service offerings are beforehand. Compare accounts to find the one with the lowest fees and the best perks.

5 reasons to get a small business bank account?

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Small business bank accounts come with a number of perks, many of which go beyond meeting your basic business needs. Whether you have a simple business or a complex business model, a business bank account will add value to your company in many ways.

1. Separate business and personal spending

As previously mentioned, separating personal and professional spending is an important benefit of a business bank account. By separating your spending, you're sending a clear message to yourself that your business is business — meaning you’re not to use those funds for anything personal. 

This separation will allow you to better focus on business spending and avoid using funds for personal reasons. This will also make it easier to keep tabs on monthly transactions, cash flow, and bookkeeping in general.

Plus, separating your finances allows you to more easily build credit for your business. In the future, you may need a business loan. Acquiring a loan can be difficult if your finances are intermingled. When you have a separate account for business, potential lenders can get a clearer image of your business spending, cash flow, financial standing, and so on. This will increase your chances of securing a line of credit and make your accountant’s life easier during tax time.

2. A more professional presentation

As a business owner or representative, you likely write a lot of checks and handle digital transactions. Whether you're writing a check or sending a money transfer for a purchase, your professional appearance can be a little less than professional when your personal account information shows up on your business transactions.

A business bank account makes it possible to have your business name and info on the transaction or check. When a client sees an incoming wire transfer or check with your name on it, you appear more established.

3. Better utilize employees

It can be hard for new businesses to imagine keeping track of multiple employees, but additional hires are a likelihood for almost any successful business. As your business grows, so too will your financial needs.

As previously mentioned, by having a business account, you can get numerous debit or credit cards for employees. These often allow you to set limits that you can monitor closely. This allows you to show trusted employees how valued and trusted they really are by giving them a card for business expenses during work travel, work outings, and so on.

As an added bonus, this can also save you time, as your employees can now handle financial tasks and work-related trips that you would otherwise have to attend. 

4. Prepare for tax time

Tax time is stressful for almost every business. But, when you have a small business checking account that's separate from your personal account, tax time can be much easier. 

Spending is easy to see when you're only looking at a business account, rather than a combined account. The easier it is to parse through your business income and expenditures, the easier it is for you to ensure you're getting the most accurate tax information.

For example, let's say you're trying to get deductions based on business expenses. Qualifying transactions can get lost in a sea of purchases when you have combined accounts. When you have a separate account, a tax specialist can easily see which purchases were business-related — as personal expenses won't even show up on the account.

5. Establish a connection with a bank

Securing a business bank account sooner, rather than later, can pay off in the form of more personal service and better treatment from your bank. Sure, you can get a business loan even if you have no previous relationship with a bank. But, if you have a longstanding account with a bank and have been a loyal customer, the bank is likely to be more accommodating when it comes time to get a loan or talk about increasing the interest rate on your account.

Many banks also offer great business discounts for loyal members. These discounts can be on hotels, airline travel, rental cars, or even restaurants. This can result in business savings almost immediately, and continue to pay off as your business needs increase.

Whether you're going with a well-known U.S. bank or a local establishment building a good relationship is never a bad thing. Banks know you can go anywhere for your banking needs. By choosing a bank early on and staying with them, you're creating a business partner.

Making wiser investments with a cash management account

For businesses heavily involved in investing, a cash management account can help you take your money management to another level.

A cash management account, or CMA, is not actually a bank account. It's a financial account that allows you to manage your investments, transfers, and trading from a single account. 

But, a CMA functions like a checking account in that you’re able to use it for all your daily operations. Not only does this make it possible to easily manage multiple transfers or investments, it helps you keep your finances more organized while providing a competitive return on investment, like a savings account. Consider it the best of both worlds — outside of the banking world.

You can have a business checking account that exists for the sake of having business debit cards for employees and spending, and a CMA that has money set aside strictly for investments or wire transfers.

For example, Brex Cash makes it possible to manage your investments and transfers while earning interest at a competitive rate. This, coupled with no ACH or wire transfer fees means your money can go farther than before.

While not every business is heavily involved in investing, those that are stand to benefit from a CMA.

Making the right choice

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You have a number of choices when it comes to business accounts. You can go with a brand name, or you can find a more tailored offering that fits your exact needs.

The perks of a business account are plenty. No two banks will offer the same exact perks. Think about what you're looking to get out of a business account. Do you need a mobile app that allows you to track spending, along with the ability to issue numerous cards? Or are you only interested in building a relationship to get a loan down the road? Make a list of what it is you're looking for, and shop around until you find the business bank account for you.

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©2020 Brex Inc. “Brex” and the Brex logo are registered trademarks.The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC. Terms and conditions apply. See the Brex Platform Agreement for details.Brex Inc. provides a corporate card. Brex Treasury LLC is an affiliated SEC-registered broker-dealer and member of FINRA and SIPC that provides Brex Cash, a program that allows customers to sweep uninvested cash balances into certain money market mutual funds. Investing in securities products involves risk, including possible loss of principal. Neither Brex Inc. nor any of its affiliates is a bank. Please see brex.com/cash for important legal disclosures.