1. The Need for a Business Bank Account
2. Benefits of a Business Bank Account

Understanding how to run a business without a bank account depends on the type of business you're operating. You may not be able to run a business without a bank account, depending on its structure and management system.

The Need for a Business Bank Account

You often need to have a bank account set up before you can begin operating your new business. Every business should have a dedicated bank account. Not only are there legal reasons to keep your business and personal funds separate, but there are tax ramifications to consider as well.

From a simpler perspective, it's just good sense to have separate business and personal accounts.

Does your business need a separate bank account, or can you just use your own personal bank account? It depends on your particular business structure. Are you a sole proprietor, or are you running a limited company?

In a sole proprietorship, personal and business affairs are treated as one as far as taxes are concerned. The proprietor is the business. In theory, as long as the bank allows it, a sole proprietor can use a personal bank account for business transactions.

However, the reality is that most banks will insist upon a separate business account, especially if you have a large number of transactions every month. You'll probably pay a monthly fee for the privilege of having so many transactions.

Having a separate account for your company makes it easier to separate business and personal expenses. When you prepare your taxes, this helps you reconcile your accounts.

You can operate under a trade name so that any payments made to the business go to the company name and not your personal name.

Limited companies are treated as separate legal entities from their owners, in comparison to sole proprietorships. The owner's personal finances are separate from company finances. While a self-employed individual is legally able to use a personal account for business, this isn't the case for limited companies. These business types must have dedicated bank accounts for the company.

Benefits of a Business Bank Account

There are numerous benefits to having a business bank account, such as the following:

  • Easier organization
  • Simpler accounting
  • Easier to determine profitability
  • More professional appearance

You can organize your business more effectively. You can easily track the money coming in versus the money going out. At tax time, you'll need to verify valid transactions, both for administrative and tax purposes. This makes tax season simpler because you'll easily be able to assemble the information that relates to your company.

You'll know which expenses are business-related because you won't have to sort through your records to figure out what was personal income and what was business. This makes accounting a simpler task.

It's also easier to see how your company is performing from a profitability standpoint. You're able to easily calculate income and expenses, showing whether your company has a positive cash flow and is making money.

Appearances matter. Even if you run your business out of your home, it's important for you to look like a real business. You won't look like a legitimate business if you can't accept credit cards since you don't have a business account (and are unable to get a merchant account as a result) or you pay bills with your personal checks. The benefits of having a business account include making your company look professional to prospective clients.

Legal concerns are very important as well. Owning a business brings with it potential liability issues. If your business is set up as a corporation or limited liability company and you have adequate business insurance, your personal assets are protected from business liabilities.

Having business and personal finances combined makes your company not look like a real business. This can make you personally responsible for business debts. Keeping separate finances makes it clear that your company is a legitimate, viable business.

There are simply too many risks involved if you use a personal bank account. Not having an account at all makes it nearly impossible to run a business.

If you need help understanding how to run a business without a bank account, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.