When it comes to bookkeeping for private practice, did you know there is such a thing as a business checking account? How is it any different than keeping your business finances in your personal banking account?
In this article, I go over the benefits of a business checking account in private practice and walk you through the process of opening one.
Are business checking accounts even a thing? When I first started out, I didn’t know anything about business bank accounts. But, fortunately, my husband nudged me to open one. And I’m so glad I listened to him!
If you’re scratching your head wondering Why do I need to go through the hassle of opening a business checking account? Keep on reading! It’s not as complicated as you might think.
Bookkeeping for Private Practice: Personal vs Business Checking Account
When my husband encouraged me to open a business checking account, it wasn’t immediately clear to me what the purpose of it was. I sort of obliged because it wasn’t that much effort to open one and it didn’t cost me anything.
What’s the difference between a personal checking account and a business checking account?
The truth is, personal accounts and business accounts are very similar in how they operate. The main difference is business accounts typically require proof of your business to open one. Depending on the bank, they may require proof of a city business license or your EIN.
Is it required that therapists in private practice have a business checking account?
The short answer: It depends on what business entity you decided on. If you’re not familiar with business entities, check out my video: Should you be a Sole Proprietor or LLC? It’s important to sort that out first before getting to this step.
In short, sole proprietors are not required to have a separate business account, while all other business entities are required to keep their business finances completely separate. However, even if you’re operating as a sole proprietor I recommend you keep your finances in a separate business account.
Advantages of Having a Business Checking Account
Here are some of the awesome benefits of having a business checking account in private practice:
- Easily keep track of your cash flow. I don’t know about you, but if I dumped all my business income and expenses into my personal checking account, I’d have a really tough time keeping track of what money was going in and out of my business. Having a separate account makes bookkeeping for private practice a heck of a lot easier!
- Stay on top of what expenses you can deduct from taxes. Yep that’s right. Most of your expenses in private practice can be deducted from your taxes. WIN! So why risk potentially missing out on some of those deductions when you can keep track of them all in a separate account? You can learn more about what expenses you can deduct in my video: Tax Deductions in Private Practice.
- Have an awesome paper trail for the IRS in case you ever get audited. Even if you’re a sole proprietor, you can get audited by the IRS. Though I wish it didn’t have to happen to anyone, having a separate account makes it easy to show the IRS those expenses you deducted for your business.
- Reap the benefits of certain business accounts. Having a business checking account can make it easier to qualify for business loans, and there are some great business credit cards available offering cash back for certain categories you might be spending more on for your business. I have an Ink Business Cash credit card affiliated with my Chase business checking account, but there are many options to explore!
- Make it easier to protect your personal assets in a lawsuit. If you are a sole proprietor, your personal assets are at risk, even if you are sued for something that occurred within your business. However, it’s best to have your bases covered by making it easy to see where your business ends and where your personal assets begin in case this might offer you some protection in a lawsuit.
- Have your office address listed on checks instead of your home address. This might seem minor, but it looks far more professional to use business checks rather than personal checks. If you pay online with a business credit or debit card, you can use your business address as your billing address, helping keep your business and personal life further separated.
Bookkeeping for Private Practice: Choosing the Right Bank
Now that I’ve hopefully sold you on opening a business checking account, how do you choose which bank is best to go with?
If you’d like to avoid the extra hassle of doing research, you could always open a business checking account with the same bank that you do your personal banking with. The biggest factor to be aware of is that some banks charge a monthly fee for business accounts, while others require a minimum balance in your checking account in order to avoid any fees. Be sure to educate yourself on those details before diving in.
Personally, I went with a Chase Total Business Checking Account, which requires that a minimum balance of $1500 stay in the account to avoid a monthly fee, but is otherwise completely free. Be sure to go with a bank that’s a good fit for you.
Hopefully this article gave you some good tools to get started with bookkeeping for private practice by opening a business checking account. Keep in mind that I’m not a professional accountant or lawyer, I’m simply offering some of my personal thoughts.
If you’re thinking about taking the plunge into private practice but you aren’t sure where to start, check out my free guide that walks you through everything you need to know to get started in private practice: Start a Private Practice in Counseling.
Until next time, from one therapist to another: I wish you well!