A business bank account is the foundation of any small business. It is an invaluable tool for ensuring your personal and professional finances remain separate, allowing you to stay organized and protect yourself from potential tax problems while maintaining a good credit score.
However, before opening your account, it is important to think through choosing the right bank, types of accounts available, required documentation, digital banking tools, and more. Here are the important things to know when you open a bank account for your business.
Why Open a Business Bank Account
Managing a successful company requires keeping your finances in order. Establishing a dedicated business bank account helps streamline the process by protecting personal assets while ensuring accuracy when calculating income, expenses, and taxes. Investing in this small detail will provide tangible returns down the line.
With a business bank account, you can easily manage the day-to-day finances of your enterprise. It provides an organized overview for tracking cash flow, analyzing expenses, and producing financial statements. In addition, having a dedicated account for your business conveys trustworthiness and stability to customers, suppliers, and lenders.
Also, a business bank account allows you to accept customer payments via check, credit card, and ACH, both in person and with digital invoicing. Embracing the power of modern technology will reduce your time spent collecting payments and improve customer satisfaction.
Finally, lenders typically look for evidence of financial stability to secure a business loan or credit card. A business account provides an organized record of transactions, giving potential creditors confidence in the strength and reliability of your venture.
Choose the Right Bank
Once you have decided on the right time to open a bank account for your business, it’s time to find the perfect bank, your new partner. Thoroughly research all financial institutions that interest you, looking closely at fees, reputation for customer service, and convenience for both you and customers/clients. Other things to consider are competitive rates of return, such as interest yield, and additional business banking services available.
You should also inquire about online or mobile banking options, including compatible software that may be available. Digital banking is becoming more popular and convenient for managing finances. The right bank will help you maximize your business’s potential, so it pays to compare every potential detail thoroughly.
After you’ve chosen a bank, you should decide which type of bank account, or accounts, are best suited for your operations. There are two main types of business accounts.
- Business checking account – These accounts provide higher transaction limits than personal alternatives and sometimes benefit from accruing interest on balances. This allows you to capitalize on small profits over time as your organization grows.
- Business savings account – This type of account allows businesses to store funds in an interest-bearing account and is invaluable when planning long-term goals or cash flow emergencies. These accounts are designed to keep funds in one place for a more extended period of time and usually have limits on the number of monthly transactions.
You could also benefit from having one of each account type. Your new partner, your banker, can assist you with the pros and cons of both options.
Setting up a business bank account requires more than just filling out forms. Business owners must provide the following documents for review.
- Copy of a government-issued ID
- Business license (if applicable)
- Certificate of formation or incorporation
- Employer Identification Number (EIN) from the IRS
- The operating agreement, partnership agreement, or corporate resolution authorizing the opening of an account
- Bank statement from a personal account to verify identity and address
- Some financial institutions require your articles of organization
Additional documentation, such as financial statements or tax returns, might be required depending on the processes of an individual bank or the amount of money you plan to deposit.
The Bottom Line
Owning a small business is an exciting and rewarding venture but can come with unique financial challenges. A dedicated bank account makes managing your business much easier and provides an organized space to track income and expenditures better while keeping your personal finances separate.
Opening a bank account for your business is essential to remain in good standing with the IRS and maintain strong financial health. It will also help you stabilize your future plans and keep on top of your financial obligations. Your success as a small business owner may depend on it!
FINSYNC is a cloud-based platform that allows you to send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.