Key Benefits of a Business Checking Account

Opening a business checking account is one of the most important early steps an entrepreneur can take. While it may seem easier and cheaper to just use your personal bank account, having a dedicated business account provides some major benefits. In this comprehensive guide, we’ll outline everything you need to know about business checking accounts—from keeping your finances organized to fueling your company's growth.

Introduction

A business checking account may not be legally required for sole proprietors and independent contractors. However, there are still good reasons why any type of business owner should open one. As we’ll explore throughout this article, a business checking account can simplify your finances, protect your assets, score you capital and loans, and legitimize your company in the eyes of customers.

While personal checking accounts typically have no monthly fees, business accounts often charge maintenance fees. However, the organizational benefits alone make it worthwhile for most business owners. And many banks offer ways to waive monthly charges. So business checking accounts provide more pros than cons if set up properly.

Keeps Business Finances Organized

Without a doubt, one of the biggest perks of having a dedicated business checking account is keeping your business money separate from personal finances. When everything flows through one account, you’ll end up with a disorganized mix of transactions that can muddy the financial waters.

With a distinct business account, you'll easily see how much revenue is coming in and exactly what you're spending on operating expenses. Having this clear picture makes tasks like preparing financial statements, tracking deductions, creating budgets, and filing taxes much simpler. No more wasting hours sorting through paperwork or trying to remember if that airline ticket was for work or vacation!

What’s more, separating accounts reduces mistakes when paying bills or vendors. And if you ever need outside financing or sell the company, your balance sheet will be clean and easy to interpret.

Adds Credibility & Builds Business Credit

Beyond organizational benefits, opening a business checking account also lends legitimacy to your venture. When you pay suppliers from a company account, it signals you are running a serious operation. This perception can help attract new customers and clients who may otherwise view you as a hobbyist or freelancer.

On top of that credibility boost, having a dedicated account in your business’s name starts establishing its commercial credit profile. Every on-time vendor payment you make gets reported to credit bureaus and counted towards your business credit score.

A solid business credit history then allows you to qualify for financing options like business credit cards, lines of credit, and loans. So opening that business checking account lays the groundwork to access capital your company needs to grow. Just be sure to manage the account responsibly.

Provides Liability Protection

As your business expands, a dedicated checking account also serves as an important legal shield between your personal and commercial finances. Without one, your personal assets could be subjected to claims or debts racked up by your business.

By keeping business funds separate, you reinforce that your company exists as a distinct entity. This protection is especially vital if you operate your venture as an LLC or corporation. In those cases, commingling finances could essentially nullify your liability safeguards.

A business checking account forms a barrier that prevents any blurring of lines. So both you and your company remain insulated from risk. For extra protection, you may also open commercial insurance policies after starting your business bank account.

Allows Smooth Payroll & Tax Payments

Initially, you may be the only employee on your payroll. But over time, any growing business needs to add staff members. Having an existing business checking account makes that transition easy breezy.

With a separate account, you can pay payroll seamlessly while keeping those transactions distinct from general operating expenses. This clarity helps tremendously when calculating quarterly income tax withholding payments.

Fuels Future Business Growth

As beneficial as business checking accounts are early on, they become even more invaluable as your company scales up. The business credit profile you establish positions you to access larger financing amounts. This funding can support any growth plans like expanding locations, upgrading equipment, or increasing inventory and staff.

In addition to loans, a business history with an account provider may qualify you for other services like merchant accounts to accept credit card sales. Some businesses can upgrade to high-volume checking accounts that offer perks like higher transaction limits or multiple users.

So in many ways, something as simple as a business checking account can provide the foundation for your small business to become much bigger over time.

Key Features to Look for in Business Checking Accounts

Now that you know the value behind business checking accounts, it’s time to actually open one. But first, you’ll want to understand the key variables and features to look for as you compare options.

Monthly Fees & Ways to Waive Them

Unlike some personal bank accounts, business checking accounts may charge routine maintenance fees. Some banks waive monthly charges if you maintain a minimum balance.

Transaction Limits

While personal checking accounts place limits on monthly transactions, business accounts offer much higher thresholds. It’s key to understand an account’s caps on monthly transfers, deposits, withdrawals, and purchases. Exceeding these results in per transaction overage fees.

For relatively small businesses, an account allowing 200-300 transactions monthly sufficiently covers activity. But fast-growing companies should target higher limits of 1,000+ to ensure they can scale smoothly.

Interest Earnings

Typically, business checking accounts don’t pay much interest. However, some providers offer accounts that do deliver modest annual percentage yields (APY). See "Do Business Checking Accounts Earn Interest?" for more details.

When Should You Open One?

If you legally structured your business as an LLC or corporation, opening a dedicated checking account should be your immediate next step. Failing to establish separate finances puts your personal assets at risk and muddies important company records.

Likewise, if you want to build business credit or plan on seeking financing soon, get your checking account fast. Any lender will want to review recent statements to evaluate financial health.

The Bottom Line

At this point, the multitude of benefits offered by business checking accounts should be clear. From an organizational standpoint, they prevent your personal life from commingling with commercial finances. A dedicated account also bolsters legitimacy, establishes critical business credit, and sets the stage for company growth.

With some diligent shopping around, you’ll secure a solid business checking account to sustain your venture for years. Proper financial management is the gateway for any successful business. An account specifically designed with your company’s interests in mind is an entrepreneur’s first big step towards prosperity.

Apply Now

Click the button below to apply for a business checking account from FirstBank, a Tennessee corporation; Member FDIC.