The basics of opening a business bank account when starting a small business.
Having a business bank account is necessary for any business owner. You may ask, “Why can’t I just use my personal checking account for my business”? A business bank account allows you to separate all of your personal and business assets.
Also, having a business bank account helps you manage your business easier and protects you in case of any liability.
Furthermore, a business bank account is used for business transactions such as payment collection from clients or customers and paying vendors and suppliers.
Here is an in-depth guide to what you need to know about opening a business bank account.
Who Should Have A Business Bank Account?
Technically, you could use your personal bank account to handle your small business expenses. However, it’s not a good idea. If you are a sole proprietor, you may feel that opening a business bank account is not crucial.
Your objections to opening a business bank account may be:
- It’s a time-consuming task
- You don’t think it’s worth the effort; it’s only a small business
- Isn’t it easier to have all my finances in one account?
The objections you have against opening a business bank account are stopping you from protecting and efficiently managing your business.
While opening a business bank account may seem unnecessary, the benefits outweigh the objections you may be having.
If you have a business that is an LLC or your business is operating under a DBA name, legally, it is required that you have a business bank account.
Benefits Of Opening A Business Bank Account
Preparing Your Taxes Can Be Less Complicated
If you are not prepared, taxes can be challenging. If you choose to be a sole proprietor, a sole proprietor is not mandated to have a business account. However, it is recommended that a sole proprietor have a business bank account.
According to Forbes, the IRS requires sole proprietors to be responsible for identifying their business and personal transactions within their personal checking accounts so they can file their taxes accurately.
A business bank account helps you have everything in order, so when it’s time to pay your taxes, you are able to take advantage of business tax reductions.
Good Organization Of Business Expenses
Part of running a small business is to track expenses, such as spending money on business matters such as marketing, tools, software, and business services.
A business bank account makes it easier for you to keep track of everything so that you won’t be overwhelmed.
Furthermore, it’s easier for you to create accurate reports from your business account statements.
Protection For Your Personal Finances And Business
A significant benefit of having a business bank account is the ability to separate your personal assets from your business finances. If you cannot pay any business debts, your personal funds will not be in danger of being taken away.
In addition, if you have personal finance challenges, your business credit score won’t be affected negatively.
Keep Tabs On Your Cash Flow
You are able to have a grip on your cash flow. A business bank account makes it easier to keep watch if your balance is getting smaller. Also, it gives you a clear view of the status of your business’s financial situation currently.
Having a good sense of how well your business finances are will provide you an advantage when dealing with credit providers and lenders.
Build Trust And Credibility For Your Business
Credibility is one of the core foundations of any business. If you have put a lot of money and consideration into your business, the final piece to your masterpiece is building trust with your customers, clients, and suppliers.
A business bank account enables you to make and receive payments directly through your business.
What Do You Need To Open A Business Bank Account?
Now that you know the reasons and benefits of opening a business bank account, what are the essentials needed to open a business account?
Opening a business bank account is different from opening a personal bank account. Some fundamental details to have are documents, licenses, and your business’s name. Furthermore, each business owner has different needs and goals.
To open a business bank account, you can go into a bank that you feel is best for you, or you can go and open an online business account. Have your documents and business information ready beforehand to avoid any delays.
Some standard documents and information needed to open a business bank account are:
- Your business’s legal name – The name you provide needs to be exactly as it appears on documents filed with the IRS and your state. If you are a sole proprietor who has a business with a name that is different from your own, depending on your state, you may need to register as a DBA. If you have a business that is an LLC or a corporation, an EIN provides proof that your business is legitimate. According to the IRS, a sole proprietor may only need a social security number instead of an EIN as the taxpayer identification number.
- ID – A driver’s license or state ID card.
- Business address – The primary address where you will operate your business.
- Business License
- Ownership agreements
Depending on the structure of your business, the documents and information required will vary. It’s a good idea to consult with the financial institution you are considering opening a business bank account with to know everything you need.
What Are The Different Types Of Business Bank Accounts?
Not all business bank accounts fit every business owner’s needs. Knowing what type of business account is right for you is key. Remember that depending on your chosen account, there may be monthly fees, minimal deposits, and withdrawal limits. Here are the options you can consider:
Business Checking Account
A business checking account is similar to a personal checking account. However, a primary difference is that the account is in your business’s name. This is excellent for showing how professional and credible your business is. Your business’s name is on your invoices, checks, and statements.
Just as you do with a personal checking account, you can make deposits, withdrawals, and transfers. Some banks have limits on specific types of transactions. It depends on the financial institution you have your business account with.
Also, a business that wants to build a business credit profile can do so by making payments to suppliers, vendors, and other business services on time.
Business Savings Account
A business savings account is different from a business checking account because it allows your business profits to increase from a set interest rate. You can have a business savings account in conjunction with a business checking account. Often, a business savings account is used to store funds.
Some financial institutions have minimum deposits for a business savings account and waive monthly fees if a minimum balance is set. Check with your financial institution to know essential details.
According to the balance, the amount of money deposited could impact your APY – annual percentage yield.
Merchant Services Account
A business account enables your business to accept credit and debit card payments from your clients or customers. A merchant services account can be used in connection with other business bank accounts, such as a checking business account and a business savings account.
According to the financial institution you have your account with, a merchant services account allows a business to transfer funds swiftly to a business checking or a business savings account.
Business Certificate Of Deposit (CD Account)
A certificate of deposit(CD) account has some similarities and differences to a savings account. One difference is that a business certificate of deposit account can bring a higher APY than an average savings account.
It’s essential to shop around to find business CDs with over 1% to 2% APY. Overall, a business certificate of deposit account is a great option to use as a business bank account for saving.
Conclusion
Having a business bank account is a great way to start and maintain your business on a track of good organization and management of expenses, liability protection, and making preparing your taxes less stressful.
Overall, it’s worth the effort to open a business bank account. After all, starting and running a business is a significant endeavor. It’s great to have peace of mind knowing you have everything in order to run your business on the road to success.
Finance and Business Operations Pathway 