Starting a business is exciting, difficult, and confusing. You have to do so many things before you can obtain your first client or make your first sale. From building a website to setting up your business bank account, you need to take tons of steps to ensure that your business is a success.
Your business bank account will ensure that the money you earn and the money you use for your business will all come from one account so that it doesn’t meddle with your personal finances. Here’s everything you need to know before you open your business bank account.
Not Everyone Needs a Business Account
If you’re a freelancer, you might not need a business account. If you want to keep your business expenses and tax expenses separate from your personal accounts, you can open another personal checking account. In some cases, there’s really no need to open a business account, especially if you’re trying to save money as a one-man or one-woman show.
If your business has employees or sells physical products, you might want to consider opening up a business bank account so that you can keep everything separate. This will allow you to see how much revenue your business earns and what your profit and losses are throughout the year.
Similarly, client-based businesses with employees and multiple accounts should have a separate business bank account to ensure that their employees aren’t getting paid from any personal accounts and that all expenses, from your email marketing platform to your payroll taxes, are in the same place.
Types of Business Bank Accounts
Many bank accounts for businesses are the same as they are for personal accounts. These include:
- Checking accounts
- Savings accounts
- Credit cards
However, a business will need one type of account if they use an online payment system. If you’re an e-commerce business or you sell online, you’ll need a merchant services account that allows you to accept debit and credit card payments from customers.
Credit Score Impact
If you’re just starting your business, any credit inquiries will go on your personal credit until you have established business credit. Increasing your personal credit score before you open a business bank account can help you get the best deals, especially when it comes to loans.
Minimum Balance Requirements
Depending on your account and your bank, each account will have a minimum balance requirement. If you drop below this amount, you’ll accumulate extra fees. Before you open an account, make sure you have an understanding of the minimum required balance so that you can always avoid unnecessary fees.
Some banks might charge an additional fee if you make more than the allowed number of transactions each month. In some cases, these are broken down into the types of transactions as well. If you expect to be getting a lot of customers and using your account a lot, you’ll need to know what limits exist for which accounts.
Similarly, there might be minimum transaction amounts. Some savings accounts charge more for transactions below a set amount because their costs per transaction are static. Look at these amounts versus the amounts your business will produce to determine what’s right for you.
Business Account Perks
Banks will often provide you with a variety of perks for using their services over their competitors. Make sure that you find out which perks are available for you so that you can determine which bank and bank accounts can help your business succeed. Some perks include:
- Limited time interest rates
- Payroll services
- Travel and hotel discounts
- Tax help
- Cash bonuses
Places the Bank Does Business With
If your business has transactions with overseas vendors, you’ll need to know if your bank can do business with your vendors. Similarly, this is important if your business requires you to travel out of state. If the bank doesn’t do business in other states or countries, ask if they belong to a network that can help you when you’re out of the area.
Documents You’ll Need to Provide
Once you’ve done your research and discovered the types of accounts available for your business, you’ll need to apply for your business bank account. Ensure that you have the proper documentation so that you can open your bank account as soon as possible:
- An Employer Identification Number (EIN) and Documentation:
To open a business bank account, your business will have to be registered with the IRS. You can apply for an EIN only if your business is located in the United States. In order to get an EIN, you must have a valid Taxpayer Identification Number (TIN), which can include a Social Security number.
- Business Formation Documents:
You’ll also need to show the bank that you are, indeed, a business owner. Make sure that you bring your articles of incorporation and any other legal documents that you and your partners have signed to form your business.
- Ownership Agreements:
If you’re the only owner, you’ll still need to provide an operating agreement. If you have partners, you’ll need to provide any and all ownership agreements. In most cases, only the person who owns most of the company can open the business bank accounts.
Some banks will also require additional documents, including a photo ID, for anyone who will be signing checks on behalf of the business.
Right Timing to Open a Business Bank Account
The best time to open an account is before you accept any payments from your products or services. If you know you’ll need a business bank account, try opening one during the incorporation process so that you can launch your business and begin accepting payments immediately.
A business account cannot be opened until you have a license to operate and an EIN.
Whether you’re a sole proprietor or a corporation, it’s important to open a business bank account to protect your personal assets in case your business ever runs into a lawsuit. Keeping your personal accounts and business accounts separate can also make things easier come tax season.
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology.. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.