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Running a business as a sole proprietorship may look very different from operating a company with a more complex business structure. A sole proprietor may not know whether to open a dedicated sole proprietorship bank account.
Sole proprietors may consider whether a dedicated business banking account fits their business needs. But when might you consider opening one?
Having a dedicated sole proprietor business banking account may help owners organize their finances and appear more professional to potential business partners or lenders.
Do Sole Proprietors Need an Account?
A sole proprietor may find potential benefits in having a separate business banking account for separating their business and personal finances. Tracking expenses and monitoring revenue may be easier for sole proprietors when their personal bills and other income are not in the mix.
Sole Proprietorship Banking Basics
Among potential legal business structures, sole proprietorship is unique. This may be a simple and straightforward way to operate many small businesses, especially when the owner is the only person doing the work and customers expect to pay them directly. A sole proprietor may accept payments under their own name and deposit them directly into their personal bank account.
However, sole proprietors may still need to track business income. If they have a business banking account, it could help make sole proprietorship banking and accounting more straightforward.
Personal vs. Business Banking Accounts
Business banking accounts may offer features that may help with business banking needs, while personal bank accounts may be more cost-effective for some businesses. As the business grows, it may be beneficial to consider the extra features of a business banking account for sole proprietors. Here are some features to consider when looking at a personal bank account vs. a business banking account.
| Personal Bank Account | Business Banking Account | ||
| Featured | Access to checks, debit cards, and ATMs Direct deposits, ACH and wire transfers |
Access to checks, debit cards, and ATMs Direct deposits, ACH and wire transfers Business-oriented rewards Business software integration Access to merchant services to accept credit cards |
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| Fees & Limitations | Maintenance fees may be waived with a minimum balance |
May have a higher maintenance fee and/or a higher minimum balance to waive or reduce it |
Potential Benefits of a Business Account
If you're thinking about a business banking account as a sole proprietor, these benefits may help you decide whether it's right for you:
- More straightforward finances: You may more easily track business expenses and revenue through a dedicated account.
- Professionalized transactions: Customers, lenders, and other potential business partners may have a more professional impression of the business.
- Potential access to credit: Business banking relationships may help enable access to a business line of credit or a credit card.
- Access to business services and products: You may be able to use business software integrations, merchant services, and other common business features.
When to Open an Account
Businesses may consider opening a business banking account as soon as they're ready to start accepting or spending business funds. If that time has already passed, the following milestones could be potential opportunities to change your sole proprietorship banking practices and open a business banking account:
- If you would like to establish or build business credit
- If you are seeking new business partners or vendors
- If you would like to start accepting credit cards
- If the business's finances could soon become more complex, such as before hiring your first employee
How to Open an Account
Although each bank has its own application and review process, some steps you may want to consider when opening a business banking account for a sole proprietorship could include:
- Apply for an Employer Identification Number (EIN).
- Gather personal identification documents, such as a driver's license or passport, as well as and other information requested by the financial institution.
- Consider whether you have all information about the business handy, including the business address, any Doing Business As (DBA) documentation, etc.
- Determine if an online business banking account or a traditional bank account may be a fit for your business.
- Compare banking options within your preferred banking method. Review relevant fees and benefits of each account to determine which might be the right fit.
- Review your chosen financial institution's business banking account application process.
- Walk through the institution's business banking application process with all of the gathered materials on hand.
Managing Money as a Sole Proprietor
It's up to you as a sole proprietor to decide which type of banking may work best for your business. If you separate your sole proprietorship bank account from your personal bank account, managing money may seem a little easier.
Once you open a separate business banking account as a sole proprietor, these tips may help you manage a more straightforward banking practice:
- Track income at regular intervals to see changes over time.
- Reconcile accounts regularly to help confirm every dollar is tracked.
- Monitor changes in revenue and expenses over time to help provide cash-flow visibility and prepare for upcoming needs.
One potentially impactful benefits of opening a business banking account as a sole proprietor is the opportunity to establish or build business credit. Learn How to Start Building Your Business Credit today.
Consider American Express® Business Banking
Get more for your business and manage your Amex® Business Checking, Amex® Business Savings, and other Amex products together in one place, online or in the Amex® App1. Deposit accounts offered by American Express National Bank. Member FDIC.
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