For those who are self-employed, it’s still critical to properly manage your finances. Should you open a business account to manage them or does your personal checking account suffice? If you ask the professionals, there are several benefits to switching to a business account, even if you are the only person to use it. For freelancers, contractors, or those self-employed in other ways, it can be challenging to develop a financial management plan.
Here’s a little help with getting started.
Why It’s Important to Manage Business Funds Separately
As a self-employed individual, you will likely need to report your income to the IRS each year and pay taxes on it. That is one of the reasons to have a business checking account that is separate from your personal account. Keeping your personal and business expenses unconnected is important to help you to know what to pay and to oversee your income.
There are many benefits to having a separate business account, including:
- Creating a foundation for growing your business, such as having an established account that helps the financial institution see that you’re a savvy business owner, which makes it easier to obtain loans later.
- Make tax payments more effortlessly and manage your taxes more efficiently with professional help.
- Simplify your cash flow for your business. You will know what is coming into and going out related specifically to your business using these tools.
Do You Legally Need to Have a Separate Business Checking Account?
There is no legal rule that says your business has to have a separate checking account if you are a sole proprietor (AKA the only owner of your business). While that may be the case, there are numerous benefits to establishing one.
If you are working as a freelancer, contract worker, or are otherwise self-employed, there are real reasons to invest in this type of account.
Can You Get a Business Bank Account If You Are Self-Employed?
If you are self-employed, that simply means you are working for yourself and not someone else. To establish a business account, you need to have the proper legal identification for your business, in most cases. That includes a Taxpayer Identification Number (TIN) or an Employer Identification Number (EIN). Many financial institutions will require this information to set up your business checking account.
You do not have to be a corporation or an LLC to have this type of bank account. You can obtain a business account like this as a sole proprietor.
What Can a Business Bank Account Offer Self-Employed Individuals?
With a business bank account, it’s possible and easy for you to:
- Make deposits into the account from your earnings.
- Pay taxes on those earnings from your account.
- Manage all of your business expenses using that account.
- Put money into savings to help you to grow your business later.
- Set up an ATM card and debit card for your bank to use for purchases.
What Types of Business Accounts Are Available?
There are two main types of business banking accounts: checking or savings. Both a business checking account and savings account may be beneficial to your earnings and finance management. They allow you to manage incoming and outgoing money, giving you the ability to meet most of your financial obligations. Sometimes it may also be beneficial to set up subaccounts. These allow you to set money aside for specific needs to better manage those funds.
What to Consider Before Choosing Business Bank Accounts
Now that you are self-employed and working to build your business, establishing a separate checking and savings account can help build your organization’s financial stability. You can find these accounts through many organizations. Some of the key things to look for when choosing a bank include:
- Monthly fees. What fees are associated with the account? Is there anything you can do to minimize fees?
- Deposit minimums. Does the account require you to maintain a minimum amount of money in it at all times? Does the account demand fees for not doing so? If so, determine how much this is and be sure you can meet it.
- Transaction limits. Some accounts have a limit on how many transactions you can make each month. Know what this is, especially if you write a significant number of checks each month.
- Accessibility. How accessible is the account to you? For example, are there local ATMs? Do they offer mobile banking to make check deposits easy to manage? Is there an online bill pay tool?
In addition to this, think long-term. What are some of the things you will need later? You may want to be able to link numerous accounts to each other so you can better manage your business finances for various goals.
It is also important to choose a bank that provides access to the financial support you may need later. For example, do they offer business loans that may help you to fund your next venture or help you to expand your business in the future? You may also want to choose a financial institution that offers credit cards, which can help to streamline your expenses for your business.
Managing Your Business Accounts with Ease
As you work to build your company, you may see more money coming in to use for various goals and needs. Be sure to use your business account properly to achieve the best results. For example, you can set up your personal and business banking at the same location, which makes “paying yourself” easy to do. You also want to view transactions and monitor your business activities with ease, even on your mobile device, so you are always on top of your business.
Work closely with a financial institution that recognizes the importance and value of your small business. Even as a self-employed individual, you are a vital part of the local economy, and for that, you need a lender and financial supporter who can be there for all of your needs.
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