8 – Should I have A Separate Bank Account

Having a separate business bank account for your business seems like either a “no-brainer” or an extra cumbersome task – depending on who you ask. Rachel Brenke shares the legal and efficiency reasons for having one – as well as how to maximize the benefits of having this separate bank account. https://rachelbrenke.com/epi8

Well, hello and welcome to The Business Bites Podcast. I am Rachel Brenke, your host, and I am currently trying to get some coffee going so that I can get this information out to you guys. I have been plagued with this question of when should I get a business bank account for my business? It’s so funny because as someone who’s so far along in business, I feel like it’s no-brainer but obviously it’s not. Then I started thinking back and I was like, “It’s not a no-brainer. Rachel, you didn’t do it in the beginning and you should have known better.” I’m going to explain why I didn’t necessarily jumped to a business bank account initially, and then I want to share with you guys some reasons why it’s really important that you need to have it. Not just the idea of everyone says I need to have it, I’m going to get one, but definitely so that you can see that there’s some legal issues that may be in it as well.

 

Some of you maybe sitting here going, “Well, I’m just trying to get my business going. I don’t know if I’m going to make it. I don’t see the point in setting everything up. I’m just being a sole proprietor perhaps.” Little CliffsNotes on sole proprietorship versus other types of business structures. Essentially you and your business are one and the same. There’s no division for your business. There’s no protection of personal assets away from your business assets. Everything is one big bucket together which sounds like super streamlined, easy and efficient, right? Well, it can be but it also can become more cumbersome down the line which I’m going to share with you guys here in a little bit.

 

Many maybe sitting there going, “I’m just doing this on the side,” or, “I’m just trying to see if I’m going to hack it before I go into this whole process,” or, “It just seems like so much work going to get a business account.” You’re right. It maybe a little bit of leg work, but I think the benefits and the protections that you can get by having a separate business bank account are really super important. I’m going to run through them really quickly for you guys because I’m going to give you homework that if you don’t have a business bank account yet, I want you to go get one so you could start putting all your funds and everything goes in and out the bank account. You can even have the option of giving it a credit card so you can start getting points.

 

I am a huge proponent of a debt-free business, so I don’t necessarily believe in having credit cards to rack up the debt. I do believe in getting business credit cards, so you can have it for when you travel and you’re not using your business bank account debit card all the time. As long as you’re committed to paying that off relatively quick, if not, before it cycles so you don’t have any interest. Even if you get a good interest credit card, I still … I’m just one of those that just hate having a debt lingering there. You don’t want it to become another bill in the overhead of your business. Those are the two things that I want you to go do.

 

If you already have those two, at the end of the episode, I want you to go back and you could look through the lens of what I have given you guys here, these four main points of benefits of why you should have a business bank account and perhaps a credit card. I want you to do it from the view of is there anything that I could change? Has my business grown? Have I outgrown that checking account? Have I outgrown the savings, et cetera?

 

All right. For the first benefit of it is it’s easier for accounting. It is by far the easiest thing to have all of your money going in and out in one report. By having a business bank account, especially if you are low volume – it’s not a very intricate a lot of stuff going on – you can cut around this whole idea of having to pay for these big accounting systems if you’re able to stick with one bank account and have all your money go in and out through that. It’s easier to account for it. It’s easier for you to have all the reports and, at tax time, you literally have it all.

 

Almost all banks and/or payment processes such as PayPal, Square, Stripe and all of those provide also some kind of report. Not only are you receiving statements of showing you all the itemized amounts of things that you’ve spent, which is really great to have for tax reductions, many of them have the options that you’re able to categorize those, again, so you don’t need necessarily a big accounting system if you’re not that mature in the business. It breaks down into these reports so you have these high level views. Maybe you don’t have time for your admin day for the month to see what all is going on, how the cash flow is going. You have these level reports for you to look at to see how much money has gone out, how much has come in and what categories they’ve done that for.

 

The first benefit is that obviously it’s easier for accounting. You can download all of them. Most are PDFs. Some give the QuickBooks file so you can download and upload it to QuickBooks and then these other reports as well.

 

The second major thing of having a business bank account is the benefits that can be provided. Yes, many times the business accounts require perhaps a little bit more of a fee than a personal bank account would be. That’s just for your service charges and so forth. A lot of times the benefits that you can get in return are really great.

 

I know one of the ones that I utilize, which is super awesome, is actually a benefit – I’m admitting this to you guys – that I’ve discovered after the fact. Because it’s a business specific card and they have sponsors and businesses that are wanting to be promoted, they’ll give you cash back if you go to certain places to eat. Well, lucky for me, when I do get out from behind my computer and talking to you guys, I’m meeting clients face–to–face. Often times, what do we do? We eat because then it gives us a defined period of time. It gives us something to do rather than just chitchatting and it helps to make everything … Food just makes everything better, right?

 

The great thing about it is that having these benefits is I can choose off of the different locations that I’m going to get this benefit, this cash back from. Since I’m going off to eat anyways, I’m getting money back as I’m treating my clients and I’m also able to track it. Easier accounting by using the business account. The money is coming out just off the business money and then I get the cash back, money for the food place as well. Those are time-sensitive promotions. Every bank account is going to be different but just keep in mind that there are different benefits. You should compare them and see what’s out there and what’s going to suit best for your business.

 

The third one is probably one of the more, I don’t know how to describe it, I guess more interesting benefits that I believe that you guys should see about that you can get out of having a separate business bank account from your personal bank account is access by others. By having the business account, I think you feel a little bit better by providing access to other individuals. I don’t mean the account. I’m thinking more of the reports. Access to other individuals so they can pull reports, create reports, file things away, maybe do your taxes for you.

 

The two main people that I just think of with this is the CPA and an assistant. You might have an assistant that just pulls reports. Many bank accounts allow you to add on individuals that can access your account but they have limited functions. You may have an assistant that you need to be able to have transfer money or write checks and those sort of things. By giving them access to your personal bank account, not only are they seeing your personal finances, but then all your personal money is at risk as well. Having a business bank account is really good to have so that they only have hands on with that.

 

The other access by others is the CPA which may not be such a big deal for them to see your personal finances because they’re probably going to see it at the end of the year anyways if you’re having the same CPA do your personal and your business stuff. The CPA and/or bookkeeper may need access to your bank accounts if you don’t want to pull the reports or they need to see something specifically. This makes it easier for them which also can in turn reduce the amount of bill that you’re paying to them. Access is easier for them and it’s cheaper for you.

 

The last major benefit and this is probably my favorite. As you guys know me, I love the law. Having a separate business bank account can keep you from doing what’s called piercing the corporate veil. If any of you were considering, or an LLC, limited liability company, or a corporation of any type, the S chapter, C chapter, blah blah blah, all that sort of stuff, if you were any of those type of business formations, you need, you must, there is no denying you need to have a separate business bank account.

 

I see so many people who fall into the trap of, “Well, I’m an LLC.” In the United States, that’s what this all of this is based on, LLCs are, by simple formation of an LLC done at the state level, you’re seen as a disregarded entity but in the eyes of the IRS. What that means is essentially it looks no different to them than a sole proprietorship. You get the benefits of LLC protection in your state but in the IRS’s eyes, it’s no different than if you were a sole proprietorship unless you do a corporation election. It’s beyond the scope of this conversation.

 

I say that because many people here, “Well, my CPA says I’m going to file essentially the same as an LLC as they do with sole proprietorship, so it doesn’t matter if my money is altogether.” It does matter because in order to be afforded the protection of an LLC which … Remember, we talked about in the beginning of the episode, sole proprietorship one bucket. All personal business assets go in one bucket. An LLC separates it out and has a division. You have two different buckets. You have a personal bucket and you have a business bucket. You put your different assets in one so they’re relatively protected. States aren’t just going to give you liability protection simply because you filed a piece of paper and paid a couple hundred bucks.

 

They want you to also have responsibility to act like a business and to deserve that liability protection. One of those is by having a separate a business bank account so that your business money is separated from your personal money. You don’t want commingling of funds. You could do what’s called inadvertently piercing the corporate veil. You can go Google piercing corporate veil and find out all that information online if you want a little bit more about it.

 

Now, if you accidentally deposited a business check into a personal, is it going to get you? Maybe, maybe not. It depends on how much the check was. It’s all circumstance specific. For the most part, it is cleaner, and easier, and looks better. You are demonstrating that you deserve to have liability protection just in this one little scope, there could be other issues going on, but just in this one little area, by treating your LLC or corporation as an LLC or corporation who have a separate bank account and not commingling funds, keeping everything separate, keeping those buckets separate. You’re demonstrating that you deserve the liability protection. You’re honoring that and you’re just doing the right thing as business owner.

 

Those are the four main benefits that I really strongly think you guys need to consider whether or not you should do a separate business bank account. It’s easier for accounting. There’s extra benefits that you can get out of being a business account versus a personal account. The access by others and so that they’re not able to see your personal or touch your personal money. Lastly, avoiding the piercing of the corporate veil, which is probably to me the most important out of this list and then as well as the ease for accounting. I just love being able to go on and download really quickly.

 

If you guys have any other questions, you’re welcome to reach out and let me know. Thank you for tuning in today’s episode of The Business Bites Podcast.