Whether your business is home-based or expanding statewide, it’s important to separate personal and business finances. In fact, one of the first steps you take when starting your business should be to open up a business bank account.
Why should you open a business bank account?
One of the primary advantages of setting up your business structure is the legal liability protection it offers. Quite simply, forming an LLC or corporation means the courts treat the business as a separate entity from those who own it. However, if you mingle your finances, a court may target the person running the company because legally it looks like you and the corporation are the same entity.
Additionally, using a business account makes it much easier when you need to file your taxes—since you’ll need to file your business income and expenses separately from your personal finances. Using a business account also adds credibility to your company.
Most banks now offer free business checking accounts so cost shouldn’t be an issue.
Setting up a business bank account
Setting up the accounting system for your business is an important step. If you haven’t determined what type of business structure you’ll have, you’ll need to do this before applying for a business account. Your business structure will determine which type of accounting will be best for your business.
Once the business structure is established, the next step is to clarify your business’ spending needs:
- How many checks do you think will be deposited each week?
- How many checks do you think will be written?
- Will you need to process credit card or online payments?
- Do you need to be able to deposit large amounts of cash?
- Is in-person banking a priority or will you make deposits after hours through an ATM?
Determining whether you’ll need a business bank account, merchant account, or business credit card and service is important. The answers to these questions will help determine which type of account is right for your company.
Next, choose a bank that meets your needs. Be sure to ask what the minimum balance requirements are at each bank and if you’ll earn interest on the funds in your account.
Prepare the paperwork
The next step is to get your papers in order. These are the documents you need based on your business structure, according to the Small Business Administration:
- Sole proprietorships: Social Security Number or Employer Identification Number (EIN); Business license or business name filing document
- Partnerships: Employer Identification Number; Partnership agreement; Business name filing document
- Corporations: Employer Identification Number; Articles of Incorporation
- LLCs: Social Security Number or Employer Identification Number; Articles of Organization
You’ll need to secure taxpayer identification numbers, business licenses, business name filing documents, Articles of Incorporation, or Articles of Organization before you open a business bank account. You also may need documents that project your company’s future cash flow.
After you have researched banks and collected all the necessary documents, you can open the account either at the bank or online. You are required to open your business bank account in person if you are in telemarketing, precious metals, gambling, or government.
The last step is to verify that the account was set up properly. Make sure the names on the checks match your business’s legal name, not your doing business as (DBA) name. Of course, you should also make sure to track the funds coming in and out of your account to make sure everything is running smoothly.