Should you use your personal bank account for business?

Small business banking is like many things in life. Doing it properly in the beginning will save you a lot of time, money and pain in the future.
An image of a bank building in an article about using personal accounts for business.

You want to start and run your business for the lowest cost possible. That’s smart. And it’s why the idea of trading through your personal account may be tempting, at least when you’re starting out. There’s a lot less admin to get through. Personal accounts are also cheaper; business accounts require a monthly fee for the privilege of using them.

But before you decide that doing everything through your personal account is the way to go, we found a few reasons you might want to change your mind.

Only Sole Proprietors can trade through a personal account

If you’ve registered a different type of business, it won’t be possible to trade through your personal account. For example, PTY Ltd businesses are separate legal entities from their founders. As such, they require their own business account to trade through.

You deserve to be taken seriously. And that’s a lot easier to achieve when your clients, customers and creditors see a legitimate business on the invoice rather than a personal account.

Your bank won’t allow you to trade through your personal account forever

Sole Proprietors can trade through a personal account – while you’re doing a limited number of transactions. It’s hard to put a number on it, but your bank won’t mind while you’re doing around 25 transactions a month or less, you should be fine.

But if everything goes according to plan, that number will go up as you grow. Eventually your bank will notice your success and force you to move to a business account anyway.

You need a business account to fulfil some crucial business functions

Simply put, you need a business account to be able to do some important stuff for your business. Three big ones include:

  • Accepting credit as payment.
  • Running a Point Of Sale system.
  • Getting a business loan from your bank.

Again, these things may not seem like big deals when you’re starting out. But as your business grows and there are new hurdles to overcome, it’s important to make sure you’re in the best position to clear them.

Especially when it comes to business loans. Access to capital can make or break your growth plans. It’s a lot easier to get a loan from your bank when they have a direct record of your transaction history and can see your growth trajectory.

Having a business account takes the pain out of taxes

This is a big one.

When it’s time to sort out taxes, you’ll have to declare the incomes and expenses of your business. That’s a lot easier to do when your personal and professional transactions aren’t on the same bank statement.

Running your business through a personal account means that you’ll have to manually separate those transactions. Down to every last coffee and Uber trip. Every. Single. Year.

Co-mingling your finances could also cost you more than time

Not having a dedicated business account makes it much easier to overlook business-related tax returns that you can claim back. Those missed opportunities to get cash back could cost you significantly more than the monthly fee for the business account.

Whether you file your taxes yourself or have an accountant, the process is much smoother when done through a dedicated business account.

You appear more professional and established

You put so much into your business. You deserve to be taken seriously. And that’s a lot easier to achieve when your clients, customers and creditors see a legitimate business on the invoice rather than a personal account. Having a business account indicates that you’re a legitimate venture that deserves respect.

Side hustlers – we’re talking to you too!

When you’re working a full time job and being paid a salary, that salary goes into your personal account. No problem.

But then you start experimenting. The odd bit of freelancing here, some contracting or consulting there – just some cash on the side. Maybe you’ve started laying down the foundation for your own business, with a handful of sales so far. No big deal, right?

It still makes sense to have a separate bank account for all the reasons discussed above. Even if your side hustle is small, you’re still liable for tax on those incomes. Blood, sweat and tears are inevitable in business, but having a dedicated business account is the easiest way to save some time and money.

In short, setting up a dedicated business account is a fundamental part of running a successful business in the long term

And don’t just open a business account with the same bank you have a personal account with. Your requirements as a business are different to your requirements as a person, so shop around and find the best fit.

Doing this properly will save you plenty of time and money in the future. And that’s the smart business decision.

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