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Why, and How, to Separate Your Business and Personal Finances

When you're just starting out, separating your business and personal finances feels like less of a priority than actually running your business. But taking the time to get set up now can pay huge dividends in the future.

Here’s why you should consider untangling your finances—and the practical steps you can take to make it happen.

Why you should separate business and personal finances

Setting up a dedicated business bank account is the first step towards clean books, a strong lending relationship with your bank, and financial protection for you and your small business.

Keep your business transactions in one place

Having a dedicated business account makes it easier to manage cash flow, create budgets, and categorize all of your transactions in one place—saving you time and headaches when you need to gather up all your documents for tax season.

Clean banking records can also give you greater insight into your small business spending habits. When you know exactly how much your business earns and spends, it’s simple to prepare financial documents like monthly financial statements or quarterly estimated taxes.

(Plus, if it’s recommended by the IRS, it’s probably worth doing.)

Build a relationship with your bank

If you run an LLC or corporation, you’re legally required to separate personal and business spending. But it’s a good idea for sole proprietors too.

One big benefit of separating your business finances is it helps your bank get to know you better. Think of it as relationship building. Year over year, you’ll have numbers separate from your personal details that show financial institutions you're a credible business worthy of future investment.

And it’s not only bank accounts. Business credit cards come with immediate perks like points and rewards, while opening doors to future lines of credit for when you’re thinking about expanding your operations.

Don’t be afraid to shop around. Some bank accounts have pre-approval for lines of credit at set up.

Get extra financial protection

Keeping your business finances separate from your personal accounts means you won’t be personally liable if your business hits a rough patch. At the same time, an unexpected crisis in your personal life won’t affect your business’ credit score.

If you go with a merchant bank account, purchase protection can give you peace of mind that all of your customers’ information is safe and secure. This is especially useful for ecommerce business owners.

Pay yourself a “salary”

While you can draw money from your small business bank account at any time, building in a payment structure is a smart way to make your personal income more predictable (and tax forms easier to fill out later).

It’s not for every entrepreneur, but paying yourself a consistent “salary” at the same time each month has benefits. It cuts down on bank transactions, mental calculations, and on better months, can give you extra cash to reinvest into your business or save for a rainy day.

Unlike the salary you’d get from an employer, you won’t be locked in. You can adjust the amount you pay yourself over time so your “salary” grows as your business grows.

How to separate your business and personal finances

There are a few things to take into consideration when picking a business bank account. We’re here to walk you through them.

Choose the right business bank account for you

As a small business owner, you've got a lot of business account options to choose from. And sometimes, that’s the problem. While the specifics of what each bank offers can differ, they will all offer variations on following types of account.

A business checking account: lets you write checks, make deposits, and withdraw cash whenever you need it. It’s covered by FDIC and usually comes with a business debit card. Just like with personal checking accounts, interest rates tend to be low, so this usually isn't the best option for storing lots of money.

A business savings account: can help you build a cash reserve or save money for future projects and investments. This kind of account can include fees, but they’re often waived by maintaining a minimum balance. It’s ideal for placing money for the medium or long term, but if your business needs to make payments regularly, you might need to supplement with a checking account.

A business certificate of deposit account: helps you save money at a slightly higher interest rate over a fixed term. However, if you withdraw funds early, you could incur fees.

A merchant account: transfers funds from your customers’ credit and debit card purchases to your business bank account. They usually come with startup fees ranging from $50–$200 and transaction fees from $0.05-$0.50 for each purchase.

Have your financial information ready to go

You’ve determined the right bank account for your business, now it’s time to get organized. To make the banking set-up process painless, you’ll need a few important documents at hand.

Here’s what you should bring to your bank:
  • Your personal social security number

  • Two pieces of government identification (think driver’s license, state ID card or passport).

  • Your Employer Identification Number (EIN)

  • Your business’s name, or a “doing business as” (DBA) certificate.

Depending on the structure and complexity of your business, your bank may ask for additional documents. Always check with them first, they’ll be more than happy to tell you what documents they need to see.

How to centralize all of your business finances

Having a dedicated business bank account is the first step towards a stress-free tax season. But before you break out the champagne, remember you’ll still have to manually categorize your business transactions, prepare your books, and find a qualified CPA before tax season.

Or will you?


Bench offers one centralized place for bookkeeping, taxes, and small business advice.

For bookkeeping: Bench gives you a team of small business experts that import bank statements and prepare financial statements every month.

For tax season: Tax preparation and filing comes standard with Bench. This includes business federal and state income tax filings, tax returns, and advisory services.

All of this means the process is quick, streamlined and most importantly lets you get back to what you do best—growing your small business.


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