When should you open business bank accounts?
The sooner, the better, right? Well, maybe not.
I’m sure you’ve heard your favorite millionaire business influencer mention opening business bank accounts as part of the process for getting started. They usually mention it offhand, along with something called a “merchant” or “payment gateway.” They don’t really go into it much, but the implication is clear: you need them.
But do you really?
If you ask ChatGPT to explain the differences between business and regular accounts (like I just did), it gives you the standard answers:
- Separation of funds for legal requirements
- Business registration paperwork required to open the account (proof of legal structure, EIN number, etc)
- Allow for multiple users
- Integration with payment processors (“merchant accounts”) to collect credit card payments
- Higher transaction limits to handle larger influxes of income and withdrawal
- Higher monthly maintenance fees and additional charges for ACH and wire transfers
- Ability to write checks in the business’ name
- Separation of funds for tax purposes
- Detailed transaction histories for record keeping
- Credit options for loans and lines of credit that are tied directly to the main accounts
- Accounting software integration
ChatGPT also specifically says in its summary that personal bank accounts lack these features “necessary” for business operations.
However, speaking both from experience and as an accountant, I say that is hogwash and I can prove it.
1. Separation of funds for legal requirements
The short version of this story is that people who run businesses and people who run the government (*cough* IRS) mutually agreed that business money and personal money should be kept separate.
The idea is that if it's all jumbled up together (going into and out of the same account), it would be harder to say what was a business expense and what was for personal use. Since our tax code doesn’t count money spent on business expenses in the taxable income, it’s in a business owner’s best interest to make the most of their expenses. (Which is why you hear about all kinds of shady shenanigans people do to increase business expenses.)
But there’s a catch to this silver lining. If there’s any question about whether the money is being spent for business or personal use, an IRS agent could decide that most of it was really for personal things and then you’d owe back taxes plus interest on all that money.
There’s also something called the “corporate veil” which is a concept invented to keep business money separate from personal money in the event someone sues your business and you’re found liable to pay: if the corporate veil is intact, a judge couldn’t order all your personal belongings and house to be forfeit to pay the dues. It has to do with liability and legality.
This is why people - and ChatGPT - say you need a business bank account.
But if you research the >>corporate veil<<, all the information just says to keep business and personal money in separate accounts. It doesn’t say that the business money has to be in a business account.
2. Business registration paperwork required to open the account
This is a difference between business and personal accounts, but it’s not a benefit to you. It just covers the bank’s behind. Since business accounts are only supposed to be used by businesses, they need proof that you’ve correctly set up with the government first.
3. Allow for multiple users
All personal bank accounts allow for joint owners and authorized card holders. A business account will typically let you have more users than a personal account, but it’s a good idea to limit authorized users to only the most necessary people in any case.
4. Integration with payment processors (“merchant accounts”) to collect credit card payments
I find this benefit to be a little outdated. True, medium sized business, like the home services industry, use large management software like ServiceFusion or ServiceTitan with native payment processors that probably only work with a business bank account. But most online entrepreneurs use Stripe, Paypal, or Square - which all integrate with personal accounts.
5. Higher transaction limits to handle larger influxes of income and withdrawal
This could be talking about the actual number of transactions in and out, or the monetary amounts of those transactions. ChatGPT very much lowballed the estimation of limits on personal accounts: I have a $50k per day deposit limit on mine, and expenses aren’t limited as much as monitored. A sudden spike in transaction volume and/or extremely large purchase amounts would trigger a security flag, but if you’re growing sustainably that shouldn’t happen. And if it does, a call to the customer service line will set it straight.
6. Higher monthly maintenance fees and additional charges for ACH and wire transfers
Also just a benefit for the bank. It’s actually a large drawback for businesses just getting started and unsure of their initial income levels. If the maintenance fee is more than your monthly revenue, you’re definitely not big enough to need a business bank account yet.
7. Ability to write checks in the business’ name
Does anyone even write checks anymore?
8. Separation of funds for tax purposes
This is the same reason as point #1. I think it’s funny that ChatGPT listed it twice as if it was different the second time. If all your business and personal expenses are jumbled together, you will have a harder time during tax season for sure. A separate account - any account - is the key to keeping track of business money.
9. Detailed transaction histories for record keeping
Speaking as an accountant who has seen the inside of multiple business accounts: this is BS.
All bank accounts work the same way and give you the same information. A business account statement looks exactly the same as a personal account statement. In fact, in the case of >>Relay bank<<, the statements are much less detailed and harder to use for record keeping.
Any “features” a business bank account might offer for record keeping - like putting notes for what a transaction was for - is a pale shadow of what you can do in accounting software, and you need that either way. No business account record keeping features will replace >>accounting software<<; and as you’re not going to do the same work twice, those notes will be in the software and not in the account.
10. Credit options for loans and lines of credit that are tied directly to the main accounts
I’ll be honest, I don’t see how this makes a difference. It’s certainly not a feature that benefits you enough to choose a business account when all the other things are stacked against it.
You can get a loan or line of credit from any financial institution if your credit is good enough. And you can set up automatic payments from any account.
The only benefit I can see is having favorable personal history with the institution already in case you need a loan fast, and being able to point to “good standing” in your account history might sway a customer service rep towards extending credit to you on more of a reputation basis and less of a strictly credit basis.
(Word to the wise: being able to get in debt fast is not usually a good thing.)
11. Accounting software integration
This depends on both the bank you use and the accounting software you use. The banks and >>software<< that integrate via Plaid can connect no matter what kind of account it is. Some banks are old-school and annoying enough not to integrate with any accounting software (looking at you, credit unions).
So to sum up:
- Personal accounts have most of the same features as business accounts
- Personal accounts don’t usually have maintenance fees (or very low fees)
- Transaction limits are really only a concern if you’re moving more than $50k per day
- You need accounting software either way
This is why my personal choice - and what I would recommend to you if we were in that kind of close relationship - is to start with separate accounts at your personal bank.
Wait to get established and making $10k per month in revenue before evaluating whether business accounts would actually have enough features to be worth it.
The only reasons you would need to start with business accounts are:
- You are taking over an existing business with high daily revenue - $30k-$50k per day
- You are taking venture capital investments
- You are paying for a lot of physical infrastructure up front (warehouses, factories, machinery, etc)
Starting with “personal” accounts exclusively for business money is ideal for:
- Businesses making less than $10k in monthly revenue
- Brand new businesses where income is spotty and unpredictable
- Online businesses (like coaching, content creation, and consulting) where you accept payments through an online merchant like Stripe or Paypal
Trust me, when it’s time to upgrade to business accounts, you’ll know. Your day-to-day operations will feel pinched, and you’ll fret over the limitations. If you’re not sure if it’s right for you yet, it probably isn’t.
I opened a business account at my local credit union when I was just starting out, and the business account had ridiculously low limits on monthly transfers out of the account which made it hard to pay myself. The personal account I started using out of frustration was WAY easier to manage out of the box, and I could connect my accounting software to it - unlike the credit union accounts.
Plus, if you start with your business money in a personal account, when it’s time to open a business account, you’ll have actual transaction history available to answer their questions: how much revenue do you project for the next quarter? What is your average expense amount? Etc
When I opened the accounts, I had NO IDEA how to answer those questions and having to guess did NOT feel good.
Want a cheat sheet for what accounts to open and how to connect them? 👇
