What's the Difference Between Business and Personal Bank Accounts?

Monday, April 14, 2014

Is it time to get a business bank account?

Many sole proprietors and professionals operating small businesses tend to use their personal bank accounts for their business dealings - and why not, you might ask? 

Why would you worry about the additional administration associated with a second bank account, not to mention the hassle of paying extra fees?

The problem is there are legitimate and practical reasons for having both, with convenience and efficiency – two things valuable to any business - being the biggest incentives to separating business and personal bank accounts.

After all, it’s most likely your business will grow and the few transactions here and there will slowly become more. Eventually, you’ll get to the point where it becomes difficult to simply keep track of things.

If you’re small enough to keep your own books, you’ll soon realise bookkeeping takes more time as your personal finances start mingling with your business ones.

Alternatively, if you have an accountant, they might start charging you more for all the extra work and time it takes to weed out your personal transactions from your business ones.   

It’s at this point you’re going to realise that it really is time to open a separate business bank account. And that's only the beginning.


Naming rights and branding

Business bank accounts often offer similar features to your personal account, but a business bank account, first off, will be opened in the name of your business. This will add credibility and legitimacy to your business, since, from a professional viewpoint, invoices made out to ACME Widgets looks far more established than those made out to 'John Smith’s personal account'.

Operating with a business bank account can also add to your branding, and helps your customers identify you more easily when it comes to billing and online transactions.


Better accounting

The time you (or your accountant) would otherwise spend separating personal items from business transactions alone can justify the often relatively low fees associated with separating your business’ income into a business bank account.

It’s easy to understand that a separate business bank account can help you to organise your books more effectively. All your business transactions are recorded accurately and you have a proper record of funds received as well as payments and expenses made in the business’ name.



You can bet your bottom dollar that the tax office would prefer you to have a separate business account and utilising a business bank account can make it significantly easier to deduct certain bank fees from your tax liability.

If you only have a personal account the tax office service may consider your business a hobby and potentially deny you some tax deductions.



When you mix your personal and business banking, you may well increase your personal liability if things go wrong. Having a one account for both could indicate that your business is not real or no more than a hobby and this could impact such things as insurance claims or you could be personally held liable for debts, which is never a comfortable situation to be in.

On the flipside of that, if ever you want to borrow money for your business, a clear account of just how eligible your business is through its recorded transactions (separate from your private transactions) can put you in clearer stead.


To me, keeping your personal finances separate from your business finances makes sense. Though the perceived benefit of using a single account for both is that you'll avoid the fees and administration associated with a second account, with so many fee-free, online-only and otherwise flexible business bank account options available, paired too with all the benefits outlined above, the point is pretty much moot.