The Benefits of a Business Checking Account
Credit: Arjun Kartha on sxc.hu
As a freelancer, it’s incredibly tempting to do everything as cheaply as you can — especially when you’re first starting out. That can include just running client payments and business expenses through your personal checking account, rather than taking the time to get a business checking account.
Even if you’re only freelancing part-time, though, I’d encourage you to open a business checking account and get serious about separating your personal finances from your business finances.
Put a Giant Wall Between Your Finances
I’m practically religious about the fact that I won’t pay for anything personal out of my business account. There’s a reason for it, though — and it actually makes for less work for a freelancer, rather than more.
If I’m not paying for anything that isn’t a business expense out of my business checking account, my taxes are a lot easier. I sit down, total up my spending and I know how much I can deduct in terms of business expenses on my taxes. No trying to remember what a particular purchase was, or deciding that half a shopping trip was deductible or anything like that. The giant wall I’ve put up in my expenses means that I cut my time calculating my taxes in half, at the very least. It helps that I never use cash for my business expenses if I can help it. I use the debit card tied to my checking account for everything. That eliminates trying to sort out cash receipts as well.
Manage Your Money Better
Another benefit that goes along with separating your finances is that you can reduce some of the hills and valleys that tend to go along with a freelancer’s income. You can set up an automatic transfer every month from your business account to your personal account. You can budget for that amount and, assuming that it’s less than you make in your best months, you can keep a cushion that will help cover the slower months. If you build your budget only around what actually goes into your personal checking account every month, your finances can wind up being a lot healthier.
I’ve also found that, personally, knowing that I need to have enough in my business account to cover that monthly transfer is very motivating. It’s easier (at least in my mind) to go out and hustle up some more work, than it is to mess around with that automatic withdrawal. I make sure that there’s always at least enough to cover the transfer in my business account. Avoiding both an overdraft fee and needing to mess around with an automatic process I’ve set up keeps me working (and lets me build up even more of a cushion).
Be More Professional
The more like a business you treat freelancing, the more you’ll come to see it as such. You’ll see yourself as a professional and so will your clients. And, trust me, it’s a lot easier to land bigger clients if they hear from people you’ve worked with in the past that you are a true professional.
Mindset is a lot of what it takes to grow your freelancing career. The average business account costs something like $25 a month to maintain (although many banks will offer an account for free). If you don’t believe that you can afford $25 a month just for a second bank account, it’s going to be tough to grow your business. If you can’t afford $25, you can talk yourself out of books that will help you grow your skills, networking events that will help you grow your business, or even dinner with someone who can connect you with a bunch of new clients.
Professionals watch their money, but they don’t think in terms of what they can’t afford. Rather, they think in terms of what they need to do to afford the next step. You need a business bank account as a freelancer, so think about what you can do to earn an extra $25 every month. If nothing else, a business account should free up some time in your bookkeeping that you can spend on client work.
Photo credit: Some rights reserved by Arjun Kartha.
This is good advice. But I think its also very important to start thinking about building company credit. I incorporated a few years back and have outstanding credit. Unfortunately, unknown to me, that does NOT mean my company has credit. I’m not suggesting that you go out and get credit cards and rack up debt but there are things you can do. Google it – http://www.mynewcompany.com/credit.htm
DUNS #, PO Box, etc….
Great article! I actually maintain two business checking accounts. One account is for deposits only. The other is for business operations, like paying bills, writing checks, paying myself. The operations account, should only have enough funds to cover your business expenses for a month.
This way you are protecting yourself from unexpected events that could put you in a bind, like a hold on your account, or fraud.
One issue with business checking accounts I’ve found is that the do charge a fee, $15/mo per account. But there are usually a couple of options at your available to avoid that fee.
I am using a service http://www.micromaximus.com to make a $1 transaction on each of my checking accounts’ debit card to avoid the $15 fee.
While having a business checking account, is a great idea, be sure you learn how to avoid any fees.
Excellent points. I never thought of setting up a recurring transfer, I always just transferred to my personal account when my business account got too big. I’m going to do that now. Thanks for the tip!
I have a business checking account which costs $12/month if I don’t make too many transactions. To keep that down I just do all my spending on my credit card and when my statement comes in I highlight those payments that should be made with my business account and pay that portion online and then pay off the remainder with my personal checking account (also online).
I agree. Anything you can do to up your professionalism is well worth it. Your point about allowing yourself a monthly budget out of the business account is especially smart. Thanks!
I’m neurotic about separating my business finances from my personal. How can you grown your business without actually knowing where you are? Having a business checking account will let you see wether your growing as a company. A step further, using some accounting software to see what your income and output are is vital, I use freshbooks.
You typically want to grow your income each month, being able to watch your intake and output each month and know what streams of revenue account for your money will help you push those streams. I use bank of america and have a free checking account. If you have an LLC or Corp you can get the account in your business name. Even if you don’t incorporate but freelance under a company name you can still have a business checking account that includes your last name. Before I filed articles of organization for SIC Digital my checking account was ‘Chacon’s SIC Digital”. This let me deposit checks written to SIC Digital as well as directly to my name.
Having clients write their checks out to your company pays for itself. People know your serious and are more willing to part with cash to work with an organization over “Joe Schmoe” to so speak. It goes a long way for professionalism.
My two pence, start as you mean to go on. If your planning on doing business then do business as it should be done, have an area and a working time, understand your worth and most of all make sure you clearly understand the difference between personal and business.
Its not only about having talent its also about doing business. Quite often the businessman/woman has no design or programming talent there strengths are in other areas.
If for no other reason but to know if freelancing is working for you, keep your finances separate so you can chart if your even earning minimum wage.
Was walking out of the bank today after depositing a few cheques wondering if I should look into setting up a business account. Great timing on this article, you have convinced me further to open a business account and separate personal and business finances.
Any suggestions for good business accounts and bank in Australia?
This is a bit of a non-issue in the UK – business bank accounts are free for the first 12 months, and then are usually only moved to a paid tariff if you’re making an enterprise-level number of transactions (my business account has been free for the last three years with HSBC).
I think it’s also important that you keep your business credit card separate from your personal credit card. It’s so much easier for accounting purposes and saves having to look across all your card statements to find the monthly charges for the subscription services you’ve signed up to online.
Boeing Employees Credit Union offers free business accounts and you don’t have to be a boeing employee. becu.org
Great and helpful article to those on their business. As a business man we need to have projection of how much we are expending and how much is our income aside from our personal wealth. Opening a business bank account is a necessary for the purpose of organization and proper accounting, is opening a business bank account. You really want to keep your personal and business finances separate and the first step towards proper recordkeeping is this division between personal and business.