Written by If you’re a freelancer, entrepreneur or small business owner, you may already have a business bank account. It’s often the first step in separating business transactions from your personal finances. But you could go a step further, creating multiple accounts that are dedicated to different aspects of your business, such as taxes, expenses and savings.
This has its pros and cons — and in some cases, maintaining one central account might make the most sense. Here we take a closer look at your options so you can decide which one is best for your business.
Reasons to Open a Business Bank Account
Let’s start with why this all matters. When working for yourself, you want to draw a clear line between your personal finances and your business’s income and expenses. That’s where small business accounts come in. Having a dedicated bank account can help:
- Keep your business finances organized and separate from your personal assets
- Minimize your personal liability
- Make it easier to receive small business funding
- Streamline your taxes
The U.S. Small Business Administration (SBA) recommends opening an account when your business is ready to accept payments or spend money. To open a business account, most banks will require your business license and registration, business formation documents, personal information, Employer Identification Number (EIN) and your opening deposit.
The question then becomes: Should you maintain one main bank account for your business or open multiple accounts?
Option 1: Keeping One Main Account
Maintaining one central account gives you a holding place for your business income, as well as money you’ve earmarked for expenses and taxes. This approach has important benefits and drawbacks to consider.
Pros
- Centralized bookkeeping: One account means that everything is in one place, which can help simplify your business finances. Whether you’re paying regular expenses or need to provide documentation during a tax audit, you’ll know where to find the information you need.
- Breakdown of cash flow: Your account statements can provide a clear record of all the money coming into and out of your business. That includes costs like payroll, regular operating expenses and debt payments, as well as payments you receive from customers. Analyzing your business’s cash flow can help you optimize your spending and identify deficits.
- Fewer fees: Some business bank accounts charge a monthly maintenance fee, among other charges. Maintaining just one account can help minimize how much you pay.
Cons
- Requires organization: Having all your business cash lumped together in one account can get confusing. You might have some funds set aside for your next tax payment and other money bookmarked for expenses — but if you aren’t organized, funds can get mixed up quickly. You’ll want to maintain a spreadsheet or use another system to help you keep track of what’s in your business bank account.
- Missed opportunity to earn interest: Keeping your business’s emergency fund in a regular checking account might cut you off from interest payments. That’s because business savings accounts allow you to earn interest, which you can redirect back into your business.
Who It Might Be Best For
A single bank account might be the best option for very small small businesses with fairly straightforward finances. This might include freelancers, consultants and solo entrepreneurs who don’t have employees.
Option 2: Maintaining Multiple Accounts
This involves opening separate accounts to hold specific funds. That can include money you’re setting aside for:
- Payroll
- Regular operating expenses
- Debt payments
- Investments and growth
- Taxes
- Emergency savings
Pros
- Easier budgeting: Having multiple bank accounts can simplify your bookkeeping and provide a clear snapshot of exactly where your money is. That can help streamline your business budget and keep your finances more organized.
- Can help if you’re audited: No one wants a tax audit — but if it happens, you’ll want to have all your financial ducks in a row. You can expect the IRS to take a deep dive into your business finances to ensure that you’re fulfilling all your tax obligations.
- Allows you to earn interest: Again, keeping your cash reserves in a business savings account can help supercharge your emergency fund, thanks to compounding interest. Business checking accounts, on the other hand, typically offer low (or no) interest payments.
Cons
- Higher fees: Maintaining more than one business account might mean paying fees to multiple banks. Fees vary from one financial institution to the next, which is why it’s wise to read the fine print before opening a new bank account.
- Could make it harder to analyze cash flow: Spreading your money across multiple accounts could make cash flow management trickier. You may need to gather more information and review several bank statements to clarify your business’s income and expenses.
Who It Might Be Best For
Separating your business finances can create a clear place for different funds. This strategy might be a good fit for business owners who have employees, are in a growth phase or who have complex finances.
How to Decide What Works for Your Business
The right option for you will depend on your business model and financial habits. Your personality as a business owner is another key factor. Some entrepreneurs may like the simplicity of having all their business funds in one account, but others might prefer the organization that comes with having multiple accounts.