8 Reasons You Should Not Use a Personal Checking Account for Business

Running a business comes with its own set of challenges, including managing finances. It can be tempting to accept customer payments, make purchases, and conduct other transactions for your business using your personal accounts, but things can get complicated quickly. From impacting how you track profit and spending to legal liability, we've put together some of the pitfalls business owners like you have encountered by using personal accounts for business purposes.

Can You Use a Separate Personal Bank Account for Business?

Legally, you can use a personal bank account for your business if it is a sole proprietorship or single-owner LLC. You should still get a separate business bank account (we list eight reasons to do so in this article), ranging from good business practices to taking advantage of services only offered with business accounts.

1. Unclear Financial Records
   When you use your personal accounts for business purposes, your personal transactions mix with business ones. This can make it difficult to prove which transactions are for business purposes and which are not because it isn't as easy as simply downloading your account statements.
   
   Not only that, it becomes difficult to track revenue, business expenses, and profitability as you now have to go line by line in your statement and transaction history. If you have a separate business account, you could look at the total spend and deposit transactions at the end of every month. Financial planning also becomes challenging because you can't clearly assess business performance.
2. Overspending and Lack of Performance Tracking
   It is much harder to track your spending accurately, and since your business and personal finances are mixed, you risk overspending on your business. Your personal finances and savings could take a dip, and it's difficult to track your business's performance if you can't accurately determine how much money your business is spending.
3. Fraud
   Having a business means there are quite a few transactions going in and out of your accounts, especially if you have an employee who has access to your accounts through a debit card or online banking. There is an increase in the risk of fraud, which means all of your money in that account is vulnerable. Consumer protection laws generally do not apply to business transactions, so if it's considered a business transaction and you lose your personal money in a business scam, you may not be able to get your money back.
4. Legal and Liability Risk to Your Personal Assets
   This is also known as "piercing the corporate veil" and can be big trouble for your personal assets and finances. It's the main risk of using personal accounts for business transactions. This potential loss of liability protection means that as an LLC, you jeopardize the legal separation between you as the single member or owner and the business itself. Because there isn't a clear separation of funds, you could be personally liable for business debts and obligations if your business runs into legal trouble later.
5. Tax Complications
   Accurate tax reporting becomes a challenge; with mixed funds, you must go through your account statements line by line to ensure you're accurately reporting profits and losses to pay the correct taxes. This can lead to errors, complicated audits, and increased risk of penalties. Deductions can also be harder to prove, and you could lose out on deductions you would have qualified for if your accounts were separate. Lastly, proving accurate revenues, expenses, and profits isn't easy and can be a big headache when you need to show that proof with the potential for paying fines if you can't after an IRS or other audit.
6. Loss of Credibility
   Having business bank accounts improves credibility and your professional image. When you have a business, customers and other companies expect to pay the business, and depending on what your business does, your credibility can take a hit. This is especially true if they're told to make out a check or pay you personally. With widespread scams and fraud, they may opt to go somewhere else entirely. The ability to send payment directly to your business reinforces legitimacy and increases your professional reputation.
7. Potential Account Closure
   Banks and other financial institutions have specific terms and conditions for personal accounts, which means they are not to be used for business purposes. If they find that you are using your personal account for business purposes, you may be asked to open a business account instead. There are limits and federal laws in place to, among other things, prevent money laundering and other illicit activities. Your personal accounts may be flagged or investigated if you reach one or more activity thresholds. It's best to reserve your personal accounts only for personal use.
8. Access to Financial Services
   There are often benefits that come with business accounts not offered to personal account holders, including higher transaction limits, merchant services, and other tools available inside business online banking, like expense management and customized reports. You'll be missing out if you don't have a business bank account, plus it can be harder to get approved for a business loan or line of credit later on if you don't have one.

How to Open a Business Bank Account

Opening a business checking account allows you to deposit funds, process payroll, pay for expenses by check, and much more. The process can take some time, so schedule a day you can go into the branch if you aren't able to open your choice of account online. Typically, opening a business checking account requires:

• Your EIN or SSN
• The legal name of your business
• Your business' DBA (doing business as) name, if it's different from the legal name
• Two sets of documentation:
  • Legal formation verification including:
    • A copy of your business license or business license number
    • Print out from the Secretary of State verifying the active status of your business
  • Formation documents such as:
    • Articles of Incorporation
    • Operating Agreement
    • Articles of Organization
    • Meeting Minutes

Opening a Business Credit Card

Business credit cards are designed for business owners like you. Opening one doesn't require as much paperwork as opening a business bank account, but it makes the process easier if you apply with the same bank where your business accounts are held. This is because they already have all your paperwork on file. Then, it's as easy as filling out an application (possibly submitting one or two more pieces of information) and waiting to hear back.

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.