Are you a business owner or entrepreneur who plans to or uses a personal bank account for business purposes? You’re not alone. According to a TD Bank survey, 27% of small business owners use their personal checking accounts for their business. 

While it may seem convenient to consolidate all your income and expenses in one place, it can come at a high cost. Mixing personal and business finances can lead to accounting and tax issues, not to mention legal liability. Here, we’ll explore the top reasons why you should avoid using a personal bank account for your business and the benefits of opening a separate business account.

What exactly are business transactions?

When it comes to banking, personal and business transactions are not the same. As a business owner, any transaction made in your bank account that is associated with running your business is considered a business transaction. Conversely, personal bills are expenses incurred for private use that do not relate to your business.

Some of the typical expenses that may be included in a business bank account can be: 

  • Rent, utilities, and phone bills are typical business expenses you may have to incur to run your business.
  • Office equipment and supplies are essential purchases for your daily operations. 
  • Salaries for your employees are also business expenses that will be incurred and recorded in your bank account. 
  • Insurance premiums are another common business expense and can include coverage for property, liability, and worker’s compensation, among others. 
  • Engaging professionals such as lawyers, accountants, and consultants to provide business advice or services are transactions that are categorized as professional fees.

Personal and business bank accounts: What are the crucial differences?

Bank accounts are a necessity for most people, but choosing the right type of account can be confusing. What are the differences between business and personal bank accounts?

Why you should not use a personal account for business / your company

1. Personal bank account

A personal bank account is an account used to manage personal finances. Your salary or income typically goes into a personal account, and you use it to pay for your daily expenses like rent or mortgage. The name on the account is yours as you are the sole owner of the account. Transactions in this account are purely for personal purposes, and only you have access to the account unless authorized.


  • Manage daily personal finances
  • Debit or credit cards can be linked to the account
  • Use for personal expenses only
  • Sole Ownership

2. Business bank account

A business bank account, on the other hand, is meant for businesses and is used to handle day-to-day business transactions. You use business accounts to make payments for business expenses like rent on a storefront and purchasing business-related goods. Checks can be written using the business’s name, and different signatories can be added to the account if required.


  • Manage daily business finances
  • Use for business-related matters only
  • Checks can be written using the business’s name
  • Multiple individuals can be signatories on the account

3. Key differences

When deciding between a business and a personal bank account, the following key differences should be considered:


A business account is suitable for business-related matters, while a personal bank account is ideal for personal expenses.

Legal Protection

Separating business and personal bank accounts offers legal protection to business owners. Clear separation between the two accounts is crucial for tax purposes and prevents confusion over which expenses are personal or business-related.


Having separation between personal and business transactions facilitates better record-keeping for the business, making it easier to file accurate tax returns.

When can I use my personal account for my business?

When it comes to using your personal checking account for a small business, the answer isn’t as straightforward as you may think. It primarily depends on how your business is legally registered.

Different business types require different bank accounts 

1. Sole traders and personal accounts

If you’re a sole trader, your trading activities are not a separate legal entity, and you technically could use your bank account for both business and personal transactions. But, having a separate business account can help you manage your finances better. The Internal Revenue Service (IRS) recommends it, making it easier to keep records.

2. Limited companies and business accounts

If you run a limited company, you can’t use your personal bank account for your business transactions. This is because your company is incorporated with Companies House and is a separate entity legally and financially. With a dedicated business bank account, you can organize your finances better and keep accurate records of your business income and expenses.

3. Business partnerships and dedicated bank accounts

General partnerships don’t require a separate business bank account as all partners manage their profits and pay taxes separately through self-assessment. However, for limited liability corporations and limited liability partnerships that have been incorporated with Companies House, they must have a separate business bank account. 

Risks of using your personal account for business

It can be tempting to use your personal bank account when starting a business. However, doing so presents a range of serious risks that can put your business and your personal finances in jeopardy. 

1. Tax consequences

Using a personal account for business funds makes it easy to confuse personal and business income and expenses when filing taxes, which can lead to tax errors, audits, or worse. Mixing business and personal funds can also trigger an audit. This makes it difficult to separate the two types of income.

2. Legal Liability

If you mix business and personal accounts, you may lose the liability protection that comes with setting up your business correctly. Your personal accounts could be considered part of the business, and you might be held personally liable for any judgments or settlements against the company. 

3. Difficulty managing your finances

Combining your personal and business finances makes it challenging to keep track of income and expenses and can make business management more complex. It may be difficult to identify how much profit your company is making or where the losses are coming from. 

4. Greater potential for fraud

Using one account for all your finances means that if someone gains unauthorized access to that account, both your personal and business income can be drained. 

5. Causing confusion

As your business grows, the number and volume of transactions will also grow. Your bank might notice and restrict the use of your account for personal expenses only, or you may risk having your personal bank account closed. 

6. Concerns about tax-deductible expenses

Keeping your business and personal finances separate can also help you identify tax-deductible expenses more clearly and increase expenses to reduce your tax bill. 

7. You may lose clients

When dealing with clients and larger companies, using a personal account for business may discourage them from conducting business with you, preferring a recognized business account to make payments.

8. Saying goodbye to raising funds

Using a personal account for business can make fundraising difficult. That is because potential investors and partners will be cautious of the lack of well-organized bookkeeping and accounting records that a separate business account would provide. 

Why set up a business bank account?

Starting a business can be a daunting endeavor. Among the many decisions you’ll make, one of the most important ones is opening a dedicated business bank account. Here are some reasons why this step is essential:

1. Financial security

By using a business bank account, you ensure your financial security by separating your money from your personal assets. This provides a level of protection against tax issues or faulty bookkeeping that could threaten your financial security.

2. Professionalism and credibility

A business bank account can also help you project a professional image by having checks and credit cards with your business name on them. This helps communicate that you’re a serious business owner and that people can trust doing business with you. It also lets vendors and customers know that you’re legitimate and take your responsibilities seriously.

3. Ease of access

Keeping a separate business account makes accessing the money you need for either personal or business expenses easier. This ensures that business funds are readily available and your personal account can be reserved for the personal income needed to pay day-to-day expenses.

4. Legal protection

Setting up a separate business account is essential for limited liability companies (LLCs) or corporations. It allows you to establish your business as a separate entity from yourself, providing legal liability protection from lawsuits. This way, your personal assets will be protected from liability.

5. Tax advantages

A dedicated business account can make filing your taxes easier and faster. Differentiating personal and business expenses in a single account may take time and effort. A business account avoids unnecessary hassles in claiming proper deductions.

6. Added convenience

Using a separate business credit card helps to separate business and personal expenses. It enables businesses to extend cash flow for recurring payments, purchase necessities, and track expenses. Also, rewards like cash-back options, travel discounts, and zero liability for fraudulent charges provide added protection.

7. Collaboration with team members

Having a separate business bank account is essential if you have employees, as they will eventually need access to your business funds. Moreover, it allows others to collaborate with you on your finances, making your accounting workflow more efficient.

8. A clean audit trail

A separate business bank account ensures clean record-keeping and provides better transparency when you’re ever audited by the IRS. It helps avoid co-mingling of personal and business money, and you know there’s no confusion about which transaction is personal and which is business.

How to open a separate business bank account

If you’re considering opening a separate business bank account, this guide will provide you with the necessary steps to help you get started.

1. Decide on your desired type of business account

Before you open a business bank account, you need to know the type of account you want. Business accounts can be in the form of checking or savings accounts, and some businesses even opt for a separate account solely for payroll. 

If you plan to accept credit card payments, you’ll need a merchant account for your business. However, most merchant accounts require a business bank account for processing credit cards and depositing payments.

2. Collect your business documents

To open a business bank account, you’ll need to provide documentation related to your business. This could include business licenses or articles of incorporation for an LLC. And a separate bank account is required for all business entities, including a single-member LLC bank account.

You might also have an EIN (employer identification number), which is similar to a Social Security number but for your business. Ensure you have all these documents ready to streamline the account setup process.

3. Set up your business bank account

Once you have gathered all the necessary documents and chosen the type of account you want, it’s time to set up your business bank account. On the one hand, the steps can vary depending on the bank you have chosen. But on the other hand, typically, you’ll be required to fill out an application form and provide all the required documents.

After the application process, the bank will verify your information and might request additional documentation before creating your business account.

Related questions

1. How many business accounts should I have?

When it comes to business bank accounts, the number of accounts to have depends entirely on your personal preference and business needs. You may choose to hold transaction accounts for different purposes or sides of your business. There’s no limit to the number of accounts you can have. 

Additionally, you may consider opening one business savings account or more to set aside funds for new technology, equipment, or vehicles, save for BAS (Business Activity Statements) time, or have a backup for unexpected expenses or troughs.

2. Is switching banks easy?

Yes, it is easier than you may think to change banks, including moving your business finances to a business account from a personal account. 

If you are unhappy with your current bank’s services or fees, exploring your options is worth considering. You can compare fees, perks, and interest rates to find a better deal. Be sure to make a plan for switching banks, for example, notifying your old bank, transferring existing funds, and updating your customers and suppliers with your new bank account details.