Small Business Bank Accounts
Why Open a Small Business Bank Account?
A business bank account is necessary for a host of legal and practical reasons. Unfortunately, opening a new business bank account is not quite as simple as opening a personal checking or savings account. Banks and credit unions that offer small business banking differ greatly in the services they offer and the fees they charge. By determining your needs up front then doing a little comparison shopping, you can find the best small business bank account for your business.
Why You Need a Small Business Bank Account
Whether you decide to work from home and operate as a sole proprietor or you choose to incorporate or form a separate legal entity for your business, you need to keep your personal finances separate from your business funds. Failure to do so can result in unwanted personal liability, tax problems, and other issues such as being unable to obtain a merchant account so you can accept credit cards. Consider the following reasons to open a separate bank account for your business:
- Credibility and Professionalism - In business, appearances matter. Whether you're trying to obtain credit from a vendor, lease office space, or take a payment from a customer, the people you deal with may be put off if you pay with a personal check, or your customer can't use a credit card because you don't have a bank account for your business. Imagine how you would feel if you went into a store to purchase an item and the cashier instructed you to make the check out to him rather than the store. Not having a business checking account undermines your credibility and makes people wonder if they are doing business with a legitimate enterprise.
- Avoid Tax Problems - The Internal Revenue Service itself recommends that all businesses have bank accounts that are separate from the owner's personal account, though there is no law requiring it. Mingling your own funds with the funds of your business makes it difficult to stand up to any government scrutiny and can make your business look more like a hobby in the eyes of the IRS, in which case any deductions you have taken could be disallowed.
Open a Small Business Bank Account for Your Business Funds
- Ease of Record keeping - Having a bank account dedicated solely to your business lets you avoid having to sort your business expenses from your personal. It also creates a trail that is simple to follow if you are ever audited. Keeping your funds separate makes it easier to keep accurate records, provide proof if anything ever comes into question, and spot expenses that could qualify as deductions.
- Establish a Business Banking Relationship - A separate bank account for your business helps you establish a history. This can come in handy and will be required when you apply for credit in the name of your business, want to accept credit cards, or apply for a loan to expand your business.
Opening an Account
Most banks and many credit unions offer small business banking packages. So what separates one from another? How do you choose the best bank account for your business? The answers depend on the type of services you need or may need in the future as well as the particulars of your business. In order to select the best small business bank account for you, you will need to evaluate the needs of your business and do some research.
Evaluate Account Requirements
In addition to identification, how much paperwork you are going to have to fill out and how many hoops you will have to jump through to get your account opened is going to depend on what type of business entity you have formed. For example, if you incorporated your business you will typically need your employer tax ID number, articles of incorporation, and possibly a corporate resolution. A sole proprietor will need to provide a social security number or tax ID, a fictitious name certificate or a business license that lists both the owner and business name.
Decide What Services and Features You Need
How important is the location of the nearest branch? Do you need to be able to manage your account through online banking? How many authorized signers will you have? Do you need debit cards and/or credit cards? Are you going to need QuickBooks integration? Do you want just checking or will you need a companion savings account as well? Do they offer automatic bill pay? By asking yourself questions, you can narrow down your choices. Having these answers will also help you prioritize and figure out whether the lack of a particular feature is a deal breaker.
Start with Your Current Bank or Credit Union
A good place to start is the bank or credit union you currently use for your personal banking, provided you are happy with the service. In the case of credit unions, they may or may not offer business banking, but it won't hurt to check as their fees are often lower than traditional banks. The financial institution where you are already a customer can be the baseline for comparison.
All financial institutions charge fees for their services. With a commercial account, you are unlikely to find totally free checking. The most common charge is the monthly service fee which can range up to $35. This fee may be waived if you meet certain minimum balance requirements or use other services such as online bill pay. Additional fees may be incurred after a certain number of transactions or for other services such as having copies of checks sent with your statement. You will be charged for your first set of checks and your endorsement stamp. Fees for these items vary widely.
Picking the Right Bank Account for Your Small Business
Opening a separate bank account is something every small business owner should do. A bank account for your business will help you keep accurate records, look professional, avoid legal problems, and establish a relationship you may be able to leverage when you need credit or a loan. Finding the right small business bank account for your enterprise is a matter of being prepared. Determine your needs, start locally, compare fees and services, and bring proper documentation with you when you go to open your account.