Business Banking or Nah? The Benefits, and Downsides, of Having a Business Bank Account as a Freelancer
/Author: Vanita Lee-Tatum
As a freelancer you wear many hats: #BossWoman, CEO, COO, CFO, the list goes on! The cool thing about wearing many hats is that you are involved in every aspect of your business – nothing gets past you, which is critical when we consider the importance of tracking expenses.
If you’re using your personal bank account for business reasons, reconciling expenses can become a little tedious. Perhaps you need to book a flight to New York to pursue your next big opportunity. Or you pop into a coffee shop and have a latte while replying to an important email. Maybe you take a rideshare across town to meet with a client or a partner for dinner. Whatever you do, all of your money moves will require a method of payment. As a freelancer it’s likely those moves are being made using your personal checking account. If you are interested in getting to the next level financially (and I know you are!) it may time to consider separating personal transactions from business expenses
Making the shift to a business account does require some effort. Your time is valuable, so let’s explore the pros and cons of utilizing this type of account for your small business.
The Benefits
Track your money (and save!): You have the ability to write off expenses for tax purposes as it relates to your business. This means you can lower your taxable income by deducting items such as that flight to New York, client lunches, etc. At the end of the day you will save lots of money! Talk to your accountant. This alone is a huge incentive to separate your personal account to keep track of business expenses, but you can also set up electronic statements and share them with your accountant or bookkeeper to better track your business expenses and income.
Build a relationship with your financial institution: A business account can enhance your banking relationship and provide access to resources that will help your business grow. It is especially helpful if you work with a bank that specializes in your needs. For example, if you are an attorney you may wish to consider working with a financial institution geared towards banking for attorneys. You may alsochoose to add a business savings account to set aside funds for taxes or even a small business credit card for short-term expenses. A business account will enable you to accept credit card payments via Merchant Services from your clients as well. Just another way to expedite cash flow!
Smarter invoicing: When you utilize business banking, you can streamline the invoicing process. Sending an invoice from your business account will give your client electronic payment capability, which can in turn expedite funds and eliminate waiting for a check to come in or clear.
Minimal documentation required: A freelancer is a sole proprietor or “individual doing business.” If you are using your own name, for example, your bank doesn’t require any documentation besides your ID and Social Security Number to set up an account for your business. When you reach the point of Incorporating, you will definitely need to provide documentation for the account opening.
The account opening process is easy: I mentioned earlier that setting up a business account requires some effort, but that effort is pretty minimal. If you already have a personal banking account at a specific financial institution, a representative at your bank can set up a new business account in minutes.
The Downsides
Managing multiple accounts: Staying on top of multiple accounts is time consuming and may add to your never-ending list of things to do; however, leveraging financial tools such as online or mobile banking can help you save time and manage your business account with ease. Responsibilities increase as we grow in business; it may seem like a hassle in the beginning but over time you may find your flow and sharpen your business acumen through the experience.
Organizing expenses: Adding a business account means deciding which items should be charged to your personal versus your business account. As a freelancer, you may determine an additional account just isn’t necessary, especially if you have minimal expenses. Take inventory of your spending to gain an accurate perspective. Everyday items such as your internet or phone bill may be redirected if you are using them for business.
Business banking fees: As a freelancer you’re probably not interested in adding unnecessary expenses such as business account fees. Banks do not offer “free” accounts in general, but they do provide clients with options to waive fees based on the relationship. In fact, your personal relationship may qualify you for a business account fee waiver. Other products such as a small business credit card or merchant services can also waive fees. There are ways to make it work! Talk to your banker to determine which options are best based on your business needs.
My personal take
Separating your personal and business accounts can be a great way to streamline your finances – and possibly even save a little money in the process! There’s really no downside to evolution, especially when it comes to your business.
Vanita Lee-Tatum is a former Small Business Banking VP turned Entrepreneur. Her reputation as a well-known trusted advisor and advocate for small business led her to build a highly successful career through the ranks of top multinational financial institutions over the course of 11 years. Continuing to do the work that brings joy, Vanita is passionate about her current role as an independent Small Business Strategist, specializing in helping entrepreneurs and organizations achieve growth. Connect with Vanita on LinkedIn or at her website.
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About Danetha: Danetha is the creator of Money & Mimosas. As a serial entrepreneur she manages a portfolio of companies as an investor and owner. She is known as the money mentor for ambitious women and been named a top 40 under 40 accounting professional by CPA Practice Advisor and a millennial entrepreneur to watch by the office of Congresswoman Barbara Lee.
