As a business owner, you might be aware that you need separate checking accounts for your business, but one other question remains: "can I use the same checking account for two businesses?" Or do you need to open different business bank accounts for each?
It might seem simpler for a business owner to use just one business account, or better yet, their personal bank accounts - but what does the law say here? Well, there are indeed certain limitations that you should know about, and you can find them out by reading our guide.
Note: if you want to instantly create separate business accounts to organize your finances, try Bonsai's business account. Our all in one business bank account allows you to create 'envelopes' or sub-accounts to organize your funds for taxes. Our virtual bank account has no hidden fees or minimums and is easy to set up. Open a checking account today.
Can Two Companies Use the Same Bank Account?
As an owner of multiple businesses, you may feel tempted to simplify your job and use the same account for all the companies that you are running. Sometimes, this can be a possibility, but other times, you may not be allowed.
This may depend not only on the business entity that you are running but also on the bank that you are collaborating with. For instance, some banks may only allow you to associate one account for one business.
With that in mind, other banks allow you to have one bank account for two separate companies. The condition is that the business entities need to be connected - typically, by the same name and the same field.
As the owner of a sole proprietorship, you have the choice of opening multiple bank accounts. However, the law also allows you to use the same bank account for your personal and business finances. You may even use your personal checking account, as long as it is under the same name.
Even in these circ*mstances, most financial institutions advise against using only one business bank account for every small business that you own. This is because managing your business will be more difficult.
If you start a new business, then you might want to get a separate account so that you can keep an eye on your business finances. If you don't, it might cause you to lose track of your cash flow.
Check out our review of the best business bank accounts.
When Will You Need a Separate Bank Account?
As mentioned, if you are a sole proprietor running the same type of business under the same name, then you may use the same account.
However, in certain situations, you may be required by the law to open multiple accounts. This includes:
- Your second business is a different legal entity from your first
- You are registered as the owner of a limited liability company (LLC) or a corporation (S-corp or C-corp).
In case you have a DBA (Doing Business As), you also need a separate business bank account. That being said, if you have a regular sole proprietorship or partnership, the choice is yours.
What Are the Different Types of Business Accounts?
No matter if you have one or more business entities, you may need multiple business bank accounts of different types, all of which will be connected to one another. These accounts can be opened by the same bank and will cover different functions.
The different types of bank accounts are:
- Checking Accounts: Checking accounts are for active transfer funds, for delivering and receiving payments. They contain liquid deposits, and there is generally no limit on the number of transactions.
- Savings Accounts: Savings accounts are mainly used for deposits, earning interest for the money that remains in your account. Typically, most of these accounts may require a minimum balance.
- Joint Accounts: A joint checking account or a joint savings account is typically used in a business partnership or in LLCs or corporations with multiple members. Any member is free to withdraw or deposit into these accounts. You may open a business bank account without your partner.
Typically, each business will need at least a business checking account. However, it is recommended that you open at least one savings account as well.
As an alternative, you may open more than one account for deposits and transactions, one for each business that you own, but use just one business savings account.
By using one business savings account, the monthly deposits added will add even more interest. And since you will not be making any money transfers from that account, you won't have to worry about the cash flow.
Why It May Be A Good Idea To Use Just One Account?
There are several advantages to using one business checking account for multiple business entities, which includes:
Managing and Transferring Money May Be Easier
Juggling multiple business bank accounts can be rather confusing, as you will have to remember the details of each account when making a transaction. Each business checking account may have its own number of transactions and minimum balance, and it's very easy to lose track of them.
That being said, if you are using just one business bank account, then you won't have to remember endless requirements. This will make it much easier for you to keep your transactions going.
You'll Have a Clear View of Your Profits
When you have multiple business bank accounts, it might become rather difficult to keep an eye on your profits. With everything separated, it might feel like you are earning too little, or you may simply overestimate how much you are earning.
That being said, if you just open one business bank account, your profits will be all in one place. This will help improve your business and personal finances, as you will be able to take accurate business decisions.
The Risk of Fraud Will Be Lower
The more business bank accounts you have, the higher your chances of falling victim to fraud will be. Multiple accounts will give hackers more opportunities to gain access to your personal information. By using just one account backed up by the Federal Deposit Insurance Corporation, for example, you'll have fewer reasons to worry.
It Can Help Your Credit
People using multiple business bank accounts have a harder time building credit as compared to someone who has just one account. This is because their credit and transactions are all over the place, making them seem somewhat unreliable.
Many California finance lender loans require you to have good credit, and they are more likely to offer you business financing if you have well-polished business bank accounts. This improved credit may also help you in the eyes of the financial institution of choice, improving your interest rates.
Why You Should Not Use the Same Account for Two Businesses
Whether your type of business allows it or not, here are a few reasons why you should not use the same business bank account for two different business entities:
The Business Entity Does Not Allow It
If you are the owner of a sole proprietorship, then legally, you are allowed to use your personal account for as many business projects as you want. However, things change when you go higher than that.
As the owner of an LLC or a corporation, you will have to pay bills that you normally would not have to deal with as a sole proprietor. As a result, the law requires you to open multiple business bank accounts for each separate business. You may try to use the same account - but it will be against the law.
You Can Lose Track of Business Expenses
When operating multiple business entities, it might be rather easy to lose yourself in the transactions. You'll need to keep track of payments from clients, payroll, money for tax time - something that may be very confusing to do when you can't differentiate which payment went where.
By having each business with its respective account, it will be much easier for you to keep track of these expenses. This way, you won't accidentally file for deductions that you would not have been entitled to.
Your Liability May Increase
Many sole proprietors use their personal checking accounts as stand-ins for their small business accounts. However, the problem with this is that their personal assets may be held liable.
If your small business goes into debt and you link just one account, then in the event of debt collection, all of the funds will be pulled from there. It does not matter if your other business is going well, all the money will be in danger.
However, if you go for separate accounts, then your business's finances will be separated as well. In the event of debt, the debt will be settled with the account that you set for it.
You May Need a Backup Account
Granted, by just using your first business account without opening a second one, you get a certain degree of protection. Hackers could only get into that account - if you use a secure bank and have financial protection, you have no reason to worry.
However, if hackers or scammers do manage to get past your bank's security system, your personal data and your money will be exposed. By deciding against different accounts for separate businesses, you may lose profits from both companies.
With that in mind, if you open a second checking account for your second business, you may use it as an emergency option to store your money in the event of someone breaking into the system. At least you'll know that some of your funds have been saved from the attack.
You May Lose Credibility
Small business owners that use the same account for multiple businesses may not appear as trustworthy. Typically, separate designated bank accounts for each business denote professionalism - so, if you are just putting money in your personal account, your clients may be reluctant to collaborate with you.
On the other hand, if you go for multiple accounts, then you'll automatically appear more professional. You will show an ability to stay organized, which will definitely help your business name.
Each Business Has Different Bank Needs
As the owner of a small business, you may eventually realize that not all accounts are the same, and they all serve different business needs. For example, one business may require you to make different numbers of transactions or may offer you a better deal in terms of benefits.
If you go for different accounts rather than just one, you'll be able to access financial products specific to the needs of your business. This will help you manage your money with more ease.
The Bottom Line: Try Bonsai's business account
If you are a sole proprietor, the law allows you to use the same account for more than one business. If you go any higher than a sole proprietorship (i.e., an LLC or a corporation), then it won't be possible.
There are some advantages to using the same account for all your business ideas, but even if you can, it doesn't mean that you should. To keep your expenses separate and to organize your finances, you may want to consider opening a separate business checking account for every business.
If you need separate accounts to organize your business's funds, try Bonsai's business account. At the push of a button, you could create envelopes or sub-accounts to organize your business's money. Sign up today.
