Business vs. Personal Checking Account: Which Should You Choose?

E-Commerce Seller Financing   •   January 25, 2021

Business vs. personal checking account

Starting a new e-commerce business requires lots of effort. From deciding on your store’s name and the best platform for it to selecting products and marketing them, there’s lots to take care of.

When it comes to a checking account, some simply choose to stick with their personal account whereas others postpone setting up a business checking account until later when they bring in more stable income.

However, is that a good idea, or should you set up a business checking account right away? Let’s take a look at the advantages and drawbacks of business vs. personal checking account and see which is the more beneficial option for your e-commerce business.

Business vs. Personal Checking Account: What’s the Difference?

When you review the specifics of business vs. personal checking account, on the surface, they appear rather similar. They both allow you to deposit and withdraw funds, use debit cards and online banking, as well as offer overdraft protection.

However, there are also some key differences that set apart business vs. personal checking account, for instance:

  • Certain business checking accounts allows you to issue employee debit cards, which allow your employees to make payments or withdraw money directly from your business checking account. This can be beneficial if your employees make payments on behalf of the business. You, of course, can set spending limits for each of these cards.
  • Business checking accounts usually have higher maintenance fees.
  • Business checking accounts may have stricter balance requirements than personal checking accounts.
  • You usually need to prepare a lot more paperwork when opening a business checking account.

Due to these differences, a number of e-commerce store owners may brush off business checking account altogether and stick to their personal one instead.

Nonetheless, there are a few benefits of getting a business checking account despite these drawbacks.

Business vs. Personal Checking Account: Reasons to Consider a Bussiness Checking Account

1. Allows You to Separate Your Finances

If you use a separate business checking account, it becomes easier to separate and manage your finances. You can clearly see what your business vs. personal finances are in each checking account. Therefore, you are more likely to make better choices without compromising either your business or personal finances or both.

2. Simplifies Bookkeeping

Having your personal and business funds separate would simplify the process of preparing your quarterly or annual tax reports as you would not need to sift through all your transactions, but just your business ones. Financing when income is tight, such as during a recession, can also be much easier.

Keep in mind that you will need your invoices and receipts to match your bank statements or checkbook in case you get audited.

3. Helps You Meet Legal Obligations

While sole-proprietors aren’t legally required to have a separate business checking account, you may be required to separate your business finances from your personal ones if you would like to open an LLC or a corporation.

You could technically just open another personal checking account; however, it could potentially invalidate the limited liability you would have received as a legal entity.

4. Makes Taxes and Possible Audits Easier

Preparing tax reports becomes a lot easier if your finances are separate. It becomes easier to separate your business vs. personal expenses when they are in a separate checking account. So, tracking and deducting your business expenses becomes much easier.

Moreover, if you get audited and your personal and business finances are pooled together in a personal checking account, then both your personal and your business finances will be audited.

5. Builds Your Business Image

If your e-commerce business is in the beginning stages, you may not notice a huge difference in having a business vs. personal checking account. However, as you grow, stakes become higher and having a business checking account can add more credibility to your business.

Applying for a business loan or business services such as payroll tends to be easier with a business account. Building B2B relationships and getting new inventory with a business account can also present your e-commerce business as more credible and professional.

Final Thoughts

Depending on your specific situation, there are advantages and drawbacks to having a business vs. personal checking account. For sole proprietors who have just recently started their e-commerce business, pooling their business and personal finances in a single account could mean lower maintenance fees and less paperwork.

However, there are benefits of having a separate business checking account. It allows you to separate your business and personal finances, makes bookkeeping and taxes easier, and can help you build your business image.

E-Commerce Seller Financing Can Help You Get Your Finances Flowing

Regardless of whether you use a business vs personal checking account, E-commerce Seller Financing can help you stay in business and keep growing. We offer financing to e-commerce businesses like yours with easy terms, transparent pricing, no hidden fees, and fast processing times.