Opening a business bank account will keep your transactions separate from your personal finances and help you stay organized.
Why your business needs a separate bank account
Whether you’re a brand new business owner, or you’ve been in business for several years, opening a business bank account will make your business finances much simpler.
The following are the benefits of opening a business bank account:
1. Keep your finances separate. When your business and personal accounts are separate, it’ll be easier to manage your finances and track your expenses.
It’ll also make your business look and feel more legitimate. When you accept deposits or make payments for your business, it’ll be payable to or from your business name.
Sometimes people will open a separate personal account and use it for their business. Although it’s great that they’re keeping it separate, the personal account is still under their social security number and name.
Having a separate business account means that the account will be under the Employer Identification Number (EIN) and business name.
2. Protection. Keeping your business funds separate will also give you protection, which ensures that your personal and customer information is secure.
Setting up the business account with an EIN will ensure that your social security isn’t exposed to identity thieves.
3. Clean bookkeeping and an audit trail. By running all of your business transactions in a business account, bookkeeping will be accurate and streamlined.
Clean bookkeeping will make your life much easier when it’s time to file your taxes because you’ll be able to calculate your income, tax write-offs, and other expenses without going through your personal accounts transactions.
You’ll also have a trail of all of your deposits and withdrawals, which will help you in the event of an IRS audit. Also, make sure you keep your invoices and receipts in case you need them.
4. Find ways to improve your business costs. With all of your business transactions in one place, you can find ways to cut costs and increase revenue. You can also find trends that may lead to overspending.
5. Build a business banking relationship. When your length of relationship with a financial institution increases, you’ll be seen as more trustworthy and loyal. Especially if you’ve maintained positive balances and use the account regularly.
This can help you when it comes to business lending and services. You may get exceptions, and waived fees due to the long history you have.
What to look for in a business bank account
For your personal bank account, you want high interest rates, free accounts, and no minimum balance requirements, right? Go into business banking with the same mindset.
However, business bank accounts are more likely to come with fees or minimum balance requirements. It may be more difficult to find free accounts, but they’re out there.
If you can’t find a free account, look for financial institutions that have low fees and minimum balance requirements. If it isn’t possible to eliminate the costs, you should do your best to minimize them.
The following are several features to look for when you’re opening a business account:
- No or low fees or minimum balance requirements.
- High-interest rates.
- High or unlimited number of transactions allowed.
- Free employee debit cards.
- Easy access, online or in-person.
Note: Credit Unions are usually better than banks when it comes to reducing or eliminating fees. Check with both types of financial institutions to see which is best for your business.
Documents you’ll need to open an account
If you’re ready to open a business bank account, don’t go empty-handed. There are several documents that you’ll need, and the common ones are listed as follows:
- Employer Identification Number (EIN).
- Business formation documents.
- Ownership and/or operating agreement.
- Some states have a unique business identifier (UBI).
- Business license.
- Business account application form.
Although you may not need all of the documents, it’s good to be prepared. Once you’ve set up your business bank accounts, you’ll be well on your way to cleaner and more streamlined finances.
Frequently asked questions
Do I need a business bank account if I’m a sole proprietor?
Legally, you’re not required to open one. However, it may be worth doing because it’ll help you keep your finances organized.
What is the best bank for a small business account?
Chase and Bank of America are two large banks that are popular among business owners. However, check with your local credit union since they may offer better products and services.
What type of business accounts should I open?
If you’re starting, a business checking and savings could be sufficient. As you grow, you can look into other types of accounts, and talk to an advisor about your best options.
Keeping your personal and business finances separate will ensure your bookkeeping is accurate and simple. It’ll make your business more legitimate, and you’ll feel much more organized.
Featured image courtesy of Pexels.
About David Em
David Em is the founder of More Money More Choices, which he launched to help you take control of your finances and build your dream life. Before More Money More Choices, David worked in leadership positions in the finance industry.