Can I Use My Personal Bank Account for My Small Business?

As a small business owner, one of the most important considerations when starting a new business is deciding on which type of bank account you will be using for your business. You may be wondering whether you can use your personal bank account for your business.

In this article, we’ll explain whether you can use a personal bank account for your small business, the benefits of opening a separate business bank account and other considerations you should make when choosing which bank account to use.

Read along!

Can you use your personal bank account for your small business?

If you have a sole trader( sole proprietorship) business, you can use your personal bank account for your business activities.
However, if you’re using a different business structure for your business, such as a trust, company or partnership, you’re required to create a separate bank account from your personal account for tax purposes.

What obligations do you have if you use your personal bank account for your small business?

If you choose to use your personal bank account for business purposes, you’re required to record any personal use and expenses of the account in a cash book. These expenses can include any money you have withdrawn from the money that’s received by your business. 

Furthermore, you’re also required to provide evidence of how you calculated the amount of expenses you claimed as private in situations where the expenses apply to both personal and business purposes. It’s essential to separate your personal and business expenses for tax purposes because you can only claim amounts related to your business. 

What are the benefits of having a separate business bank account?

Although sole traders (sole proprietors) may use their personal bank account for their business, they’re generally encouraged to open a separate one. The majority of banks will insist that sole traders should open a separate business account which may incur a monthly fee. However, opening a separate bank account provides many benefits. These include the following:

• Having separate accounts will make your accounting simpler because you can easily identify your transactions
• If you choose to use accounting software for your business, bookkeeping will be easier if you have a separate business account, as the software can have direct integration with the account
• Your account will appear more professional because you can ‘trade as’ your business name instead of your personal name
• It will follow the accounting entity concept in which your personal expenses must be different to your business expenses

• Clearly distinguish between your business and personal finances
• Analyse your cash flow
• Monitor your business income and expenses
• Easily generate reports of your business transactions
• Cleaner and more professional accounting
• It will be easier to extract relevant information for tax purposes
• During tax time, it’ll be easier to prepare tax returns and business activity statements

What to consider when choosing a business account?

Before opening a business account, you should consider the following:

• The type of business you run. If you’re unsure of what type of business you have, you can find out using the Australian government’s ABN Lookup 
• The cash flow and services your business will require 
• Merchant facilities available such as Eftpos
• You should also analyse whether your sales are international or domestic
• The type of interest you would charge
• Fees related to transactions and account services
• Interest 
• The charges and fees that will apply to business cards

Internet Banking

Online banking is another helpful way to manage your business accounts. Banks have very strict security and encryptions to protect your accounts. Internet banking is very convenient as it allows you to make payments at any time. 

You can also set up direct debits and automatic payments for regular payments. Furthermore, banks will usually provide certain packages to help set up a business bank account. 

Other Business Types

You should be aware that if you want to create a partnership, company or trust, the Australian Taxation Office(ATO) states you must have a separate business account. A company is a separate entity from its shareholders and directors. Therefore, the personal expenses of directors are different to the expenses of the company. 

Whereas sole traders have personal liability and can use a personal account for their business if their bank permits it.

Do I have any other obligations as the owner of a small business?

As a small business owner, you should also be aware of the following:

• The ATO states that you’re required to keep business records for a minimum of five years
• If you choose to hire employees for your small business, you should be aware that it’s a legal requirement to have workers’ compensation insurance, and you must comply with superannuation contributions
• As a sole trader with a small business, you should be aware that you’re not able to divide business profits or losses with your family members
• As a sole trader of a small business, you’re also personally liable to pay tax on all the business income

Do you need a business bank account if you’re self-employed?

You don’t need a business bank account if you’re self-employed because you are a sole trader. 

Conclusion

Although you can use a personal bank account for your small business, it isn’t recommended due to the many benefits provided by having separate accounts, including a clear separation of your business finances and personal finances. 

If you’re a small business owner and you’re feeling unsure as to whether you should use a personal account for your small business, you should hire a lawyer for legal advice. Similarly, a lawyer can provide you with advice regarding the different types of bank accounts you can open for your business.

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