If you’re just starting a company and sweating about decisions such as “Do I need a checking account for my business?”, I know how you feel. I went through this same decision, concerned about doing the right thing. Actually, I was concerned about accidentally doing the wrong thing and messing up somehow. Are there legal concerns that essentially require that I have a separate account? Could I lose my limited liability simply because I used my personal funds to pay for my business’ web hosting? In the end, I found that I didn’t have much to worry about, but these concerns were very real (and scary!) to me. Starting a new business is scary enough. Worrying about doing things right to avoid violating some unknown law just seemed like wasted effort, and it can be incredibly distracting when you’re trying to earn some income.
I formed GBGames LLC last year, and a month later I received my Employer ID Number. Other than renewing the LLC and dealing with taxes this past April, I haven’t done much of anything related to business or accounting. On my list of things to do, I have “Get a business checking account”, and it has been there for a long time. I decided to get it completed and off of my list as soon as possible. First things first: do I even need a business checking account?
Having a separate checking account for the business seems to makes sense to me. It should be easier to keep my personal and business finances separate if I have a separate account for each. But then again, does this mean I need a separate business credit card? Most of my purchases are through one of my credit cards. I pay the balance each month and get the advantage of building credit. Occasionally, I receive a gift card to use at a local bookstore. Having a separate card means I won’t receive the benefits I do from using one card. I’ll have to remember to use the business card for business purchases, and if I forget, I’ll have to reconcile my numbers with my personal finances. Currently, I only have one set of finances to deal with, which seems much easier.
If I do get a separate account, I will need to deposit some money into it. Business accounts aren’t likely to make as much in interest as my current personal account at ING Direct, which is 4.5% right now. Any money I take out of it will make less money for me. Then again, the money invested in my business will hopefully be netting me bigger gains than the most generous bank. Still, what’s the point of having a separate account? It seems like having one would just be one more thing to keep track of, and more complexity isn’t really necessary or desirable for someone running a part-time business.
Since I run a single-member LLC, and I have not elected to be taxed as a corporation, the government taxes my company as a sole-proprietorship. My business is just an extension of my personal taxes. I don’t make many purchases for my business yet, and any purchases I do make are made in my name. Yes, I have to keep my receipts and separate personal expenses from business expenses, but since I do not make too many pruchases, these expenses are easy to keep track of. Last year, I bought a laptop and paid IGDA and ASP membership dues. I also paid to attend the Grand Rapids Schmooze meetup, including hotel expenses and transportation. My accountant took this information and figured out how much of it could be deducted from my taxes. Having a separate checking account wouldn’t have made this process much easier.
Basically, don’t attempt to pass off your family’s grocery bill as a business expense. If I buy a video game as a birthday present for a friend, it’s a personal expense. If I buy a video game as research for my business, it’s a business expense. I bought my girlfriend a computer for Christmas. I bought myself a laptop to allow me to do work. The former was a personal expense. The latter was a business expense. So long as I keep such expenses separate, I will be fine.
I’ve decided that I do not need a separate bank account for my business, at least for now. Maybe when I start earning more from my business, it could make sense, but there is no urgency in getting one. I can concentrate my efforts on the work of my business rather than the overhead of my business. If one day I find a need for a separate checking account, I’ll get one then.
If you decide that you do need a business checking account, this article on choosing a bank for your business will probably come in handy: Choosing Banks