What’s Wrong With Using Your Personal Checking Account for Business?

Think it’s easier to just use your personal checking account for your business? Think again. You could end up disrupting your business or costing yourself far more money than you’re saving. Here’s what can go wrong.

Your Bank May Suddenly Close Your Account

Using your personal checking account for business purposes is against most deposit agreements. Some banks are stricter for others. For example, one bank has been reported as suddenly closing an individual’s account for receiving deposits from freelance work, eBay, and Etsy.

If your account is suddenly closed, you could be faced with no way to receive deposits or have payments to vendors bounce. At best, this will be an embarrassing situation that costs you time and money to resolve. At worst, you may permanently harm business relationships if people feel you’re financially unstable.

You’re Giving the IRS a Blank Check to Look Into Your Accounts

When the IRS audits your business, it has the right to request your accounting records and bank statements. If you’re using your personal account, this means that the IRS will be going through all of your personal transactions as well since they’re mixed in.

Even if you think you have nothing to hide, this makes the audit take longer and gives the IRS more things to ask questions about. On the other hand, if you’re using a separate business account, the scope of the audit is naturally limited to only your business activities.

You May Lose Corporate Protections

If you’ve formed a corporation, LLC, or other limited liability entity, it’s especially important to use a separate bank account. This is often a legal requirement in itself but is also an important step for keeping your limited liability.

The reason you get limited liability from a corporation or LLC is that it’s considered a completely separate entity from you as an individual. If you don’t act like it is, such as by mixing your personal and corporate money, the legal theory under which you get limited liability evaporates. If you’re later sued, this could allow the plaintiff to pierce the corporate veil by claiming you’re not really a corporation so they can go after your personal assets.

You Could Lose Banking Protections

Many banks offer to reimburse you for unauthorized transactions on both business and personal accounts. However, the level of protection is often different. In addition, there may be additional requirements such as using the account for its intended purpose.

If you had a large loss, the bank would probably perform a thorough investigation before reimbursing you. If they found that you had business transactions in your personal account, they may use this as grounds to deny or reduce your claim.

It Makes Your Accounting Harder

When you mix personal and business transactions, it means you or your accountant have to take the extra step of sorting out what’s business and what isn’t. By contrast, if you have a dedicated business account, you can automate virtually all of your data entry using QuickBooks or other popular software. This reduces the chances of mistakes and gives you a more accurate picture of your finances.

Need extra cash flow to meet a business checking account opening minimum or minimum balance to avoid fees? Learn more about how you can use your existing sales to increase your working capital and speed up your growth.

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