Can I use my personal bank account for business?
It’s one of the questions I’m asked the most.
Answer: yes and no.
I’m sharing the options freelancers take, the pro’s and con’s and whether it’s legal.
So you can make your own informed decision and get on with the important business of making money to put in your bank account.
First though, I need to ask you if you’re a sole trader or a limited company.
If you are a limited company, your decision is made. You need a business bank account.
Your business is a separate legal entity to you and it needs its own bank account. You don’t need to worry if you have used your personal bank account so far, for a new business that’s normal. Your accountant can sort all that out for you.
What’s important now is that you open a business bank account. Read my article How To Choose A Business Bank Account for more information.
If you don’t have an accountant already, you need one.
I don’t do limited company accounts and it’s not something you can do yourself. Ask for a recommendation and look on Twitter. I can coach you so you’re confident knowing what your accountant is doing for you and what having a limited company means in normal English (costs, tax deductible, how you’re paid, how to reduce your accountant’s bill). If that’s something you’re interested in, click here for more details.
If you’re a sole trader, you have more options and I’ll cover the legality of those options.
One point though. If you’re a sole trader you ARE a business. It means you’re not a company. (I know, it’s easy to get confused, it’s not your fault. Read my article here for more info about the difference).
This is a common option freelancers use when starting a business.
Starting a business sounds very grand. It can be as simple as you want to consistently work for clients and you are available and looking for clients (whether you have any or have been paid yet is a side issue). You’ve registered as a sole trader (how to do that here) and bob’s your uncle, you’re a business.
You use your personal bank account as your business bank account and you have personal and business transactions in the same account.
Remember, you can use personal credit/money to fund business investments (like coaching or a course) without mixing your personal and business bank transactions. You can start to do this at any time, even when you’re an established coach (good question, Kate Greenstock).
You can learn how to do this in my private Tax & Cake group on Facebook (search for ‘business bank account’ in the group). You can get access by buying The Tax Return Toolkit.
You use a separate personal bank account as your business account.
Some freelancers use an account that was already open and others open a separate account.
Whether you use one or two personal accounts (maybe one for invoicing and another for expenses/saving for tax), it’s still personal. I recommend using only one bank account as more than one is chaotic, complicates your business and takes extra time you could spend working for clients.
A lot of freelancers do this as a temporary measure while they’re emotionally not ready for a business bank account or ‘just testing the waters’.
You use a business bank account as your business bank account.
Let’s cut to the chase here.
Hands up if the idea of opening a business bank account feels like I said there was an unexploded bomb in your lap.
Take a deep long slow breath, then let it out.
The first step to having a grown up business is a business bank account. That doesn’t mean you need to jump in the river if you aren’t emotionally ready to open one yet. It can take time to be ready.
(If you’re a limited company and didn’t read what I said at the top of this article, you DO need a biz bank account so go get one. Read here for more info about choosing.)
Put on your big girl pants and be in the space of looking at business bank accounts, reading the pro’s and con’s, asking about it in forums, communities and networking events. Ask freelancers who have been in biz a while what they recommend, their experience, and why. This is a ‘being in the space’ thing you need to do, as well as for information collecting.
It’s a perfect task to tick off when you’re in procrastination mood or it’s Friday afternoon and you don’t fancy working ‘properly’. This is proper grown up money stuff and feels like goofing off compared to writing copy for yet another client deadline. (Just don’t fall into ‘research’ as an excuse for taking no action’).
Let’s look at the pro’s and con’s of having a business bank account for your business.
The pro’s and con’s divide into the ‘sensible’ logical ones that you’ll find on any business website.
Then there are the ones no-one talks about.
That’s why it’s such a personal decision.
(Please bear in mind that technically, any option other than having a business bank account breaks bank terms and conditions.)
Which is right for you?
Does a business bank account feel like the photo on the left or the right?
Does a personal bank account for business feel like the photo of the left or the right?
Does a separate personal bank account for business feel like the photo on the left or the right?
It’s your decision as a sole trader whether you use a personal bank account for business or open a business bank account. (Limited companies, open a business bank account).
Take an informed decision from your heart as well as your head and keep it simple.
What’s right-for-now, if it isn’t opening a biz bank account now.
If you don’t have a business bank account, read How To Choose A Business Bank Account so you can look into opening one now or be ready for when it’s your next step.
You can find out how to tax-deduct bank and finance charges in the Tax Return Toolkit.
Share with me in the comments.