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Running a small business is an involved undertaking that requires lots of hard work, dedication, and management of day-to-day operational tasks like customer service, inventory management, and marketing. In addition, entrepreneurs need to have a good grasp of their company’s financials. Staying on top of sales reports, expense reports, and profit and loss statements, among other financial documents, can be time-consuming. And it can be time-consuming and confusing if the business does not have a business bank account, especially when it comes time to pay taxes.
A business bank account keeps a company’s finances separate from the business owner’s personal finances. If you own a company and haven’t opened a business bank account, this Balboa Capital blog article is for you. It explains how to open a business bank account, why it is needed, and how it can help simplify your bookkeeping, build your business credit profile, and more.
What is a business bank account?
A business bank account is similar to a personal bank account, except it is used primarily for business purposes. This includes making purchases and accepting payments as your business. You can also use your account to save money for future business needs. The most widely used business bank accounts include checking accounts, savings accounts, and business credit cards.
Many business owners also obtain merchant services accounts. This type of account enables businesses to accept and process credit card and debit card payments in-store and online.
How do I choose a business banking account?
Choosing a bank or credit union for your business bank account is a personal choice. Perhaps you already have a bank or credit union that you like. In that case, you may want the convenience of having a business account, personal account, and individual retirement account (IRA) at the same financial institution. That said, take your time and research the available options.
For example, you probably want an account with zero (or low) monthly fees, a minimum balance requirement that you can realistically maintain each month, low transaction fees, low Automated Clearing House (ACH) fees, and online and mobile banking capability.
It is not uncommon for banks to advertise introductory offers to encourage business owners to open business bank accounts. It would be best to read the fine print to fully understand the offer, what it entails, and what exceptions may apply.
How can I open a business bank account?
You can open a business account quickly and easily at a bank or credit union, either in-person or online. The required business documents will vary based on the bank or credit union you choose, the state where your business is located, and the type of business legal structure you have. Before you start, you might want to look at the documents needed to open an account. Doing so can help you save time and ensure that everything goes smoothly.
You will need your business’s name and address, your contact information and date of birth (DOB), your Social Security number (SSN), and a government-issued photo identification card, such as a state driver’s license. If you obtained an employer identification number (EIN), also referred to as a federal employer ID number (FEIN), make sure you have it readily available when you are ready to open your business bank account. You can use your Social Security number if you operate as a sole proprietorship.
Some banks and credit unions might ask for other business documents, such as a partnership agreement, legal formation paperwork, articles of incorporation (if you formed a corporation), or a business license. Again, check with your bank or credit union to get a complete list of what you will need to have.
What are the benefits of having a business bank account?
A business bank account is a great way to manage your finances and keep track of transactions, which will help you plan for the future and avoid any late payments. There are many other benefits to having a business bank account, too.
- It will provide you with more credibility as a serious entrepreneur.
- You can use it for your tax paperwork and filings.
- It can help you file an accurate tax return and maximize your deductions, if applicable.
- It can give you access to loans with favorable rates and terms, providing you achieve and maintain a good business credit score.
- You can use it for your company’s payroll and expenses.
- You can use it for your company’s accounting purposes, such as invoicing and paying bills.
Moreover, a business bank account can provide a basic level of financial protection by keeping your business funds separate from your personal funds. The level of financial protection increases based on the type of legal structure you have. Let us use a landscaping business as an example. The company is a limited liability corporation (LLC) and experienced a dip in revenue for two straight quarters.
As a result, the owner couldn’t pay the company’s bills, and some of the accounts went into collections. However, the landscaping company’s owner did not need to worry about his home, truck, and other assets. The business bank account and LLC protected his funds and assets.
Business savings accounts.
A business savings account is just like a personal bank account in that it can be used to stash money away for the future. Most savings accounts earn interest, although interest rates have been relatively low over the past few years. Regular deposits allow you to set aside capital that can grow over time.
Business checking accounts.
A business checking account is just like a personal checking account; only it is used exclusively for business purposes. You can access your checking account and pay vendors, bills, and day-to-day business expenses.
When choosing a bank or credit union for your business banking needs, don’t rush into it and make a decision without doing your due diligence. You want to pick a business banking resource that works best for you based on your needs and offers the most benefits.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.