Everything You Need to Know About Setting up a Small Business Bank Account

Managing cash is challenging.

As your new small business grows, you will have to make important decisions regarding various aspects of your operations, particularly around opening a business bank account. Your banking needs go beyond simply having a free checking account. It is crucial to build a strong connection with a banker who comprehends your business and can contribute to its growth.

We recommend following the steps outlined in this guide to help you make a well-informed choice when choosing a bank account for your new business adventure.

Do I need a small business bank account?

First, you may be wondering, “Do I actually need a business bank account?” 

The answer is yes, you do. Small business bank accounts are essential when you first set out on your entrepreneurial journey. 

Having a business bank account is a legal necessity in many countries—they want you to keep your personal money separate from your business cash. That helps with transparency and avoids any legal headaches down the road. 

Plus, unofficially, having a business account makes you look like a pro. It shows clients and partners that you're serious about your business and providing exemplary services. 

On the practical side, it helps you stay organized. You can easily see what's coming in and going out, making your bookkeeping a breeze. This also applies to tax time, as having a separate account makes it much simpler to claim business expenses. 

Business bank accounts often come with perks like business credit cards or lines of credit that can be handy when you’re growing your business. 

But don't forget about risk—keeping your personal and business cash separate can help protect your personal stuff if things get tough for your business. So, when you're diving into the entrepreneurial world, think about snagging a small business bank account. It's a solid step for keeping your business looking sharp and running smoothly.

What to look for in a small business bank account

Picking the right small business bank account can make your entrepreneurial life way easier. So, what should you keep an eye out for when hunting for the perfect fit?

Let’s talk about fees. Nobody likes surprise fees messing with their cash flow. Check what fees are lurking around, like monthly fees, transaction fees, ATM fees, all of them! Some banks might cut you a deal or waive fees if you keep a minimum balance or make a certain number of transactions, so make sure you read the fine print. 

Next, tech stuff. We're in the 21st century, and your bank should be too. Look for a bank with a user-friendly app and online banking. It's a game-changer for keeping tabs on your cash on the go.

Always consider support. You want a bank that's got your back, especially when things get tricky. Check their customer service. Are they reachable when you need them? Are they helpful, and can you access their helpline 24/7?

Find a bank that fits your style, doesn't sneak up with fees, plays nice with tech, and gives you the support you need. Always check for offers when it comes to interest rates (if you're parking some savings). 

How to open a business bank account 

Ready to kick things off and open up your shiny new business bank account? It's not as complicated as it sounds! Here's the lowdown on getting it done.

Gather your docs

First things first, gather up your paperwork. Banks usually want to see some basics like your business registration, ID, and maybe even proof of your income. Check with the bank beforehand so you don't show up empty-handed.

Decide on account type

Think about what type of account suits your business best. Are you flying solo or partnering up? Do you need a savings account, checking account, or both? Different accounts come with different perks, so figure out what fits your business style.

Choose your bank

It’s now time to pick a bank. Shop around a bit. Check out fees, features, and reviews from other small business owners. A bank that gets rave reviews for customer service might be worth checking out. 

Head to the bank (or go online)

Once you've made your decision, head to the bank or hop online to start the process. Some banks let you open an account online, while others might want you to go to a branch. Either way, they'll guide you through the steps.

Fill out the forms

Brace yourself for some paperwork, because this is where you'll fill out an application and provide the necessary documents. The bank will let you know what they need—it's usually your business info, personal details, and those essential documents you gathered earlier.

Deposit some cash

Some banks might ask for an initial deposit to get things rolling. Then, you can officially open your account. The amount varies, so check with the bank to see what they're looking for.

Get your account goodies

Once everything's good to go, the bank will give you the keys to your new business account. You'll probably get a welcome pack, some checks, and details for your online banking. 

Stay connected

Stay in the loop with your new bank account. Set up online banking and download the mobile app if one’s available. And remember to keep an eye on your transactions. The more connected you are, the easier it is to manage your cash flow.

Establish a Relationship

When you’re considering a business banking relationship, start with the end in mind.

You need a partner who can serve your banking needs as your small business expands. Over time, you may need a line of credit for operations, or a long-term loan to purchase assets.

Small business owners must build trust with a banker so that the bank is willing to add services and lend money. Loan approval requires more than a set of financial statements. Ultimately, a loan officer must know you, trust that you’ll repay loans on time, and understand the unique challenges of your industry.

Industry knowledge

The banker must understand how businesses in your industry operate. As an example, meet Patty who owns Family Grocery, a business that operates five grocery stores. Patty’s bank recently merged with a large competitor, and the level of personal service isn’t what it used to be. Patty is considering a move to a new bank that can provide better service. The key contact will be the bank’s loan officer, who must understand several factors regarding Patty’s business.

Profit margins

Grocery stores typically operate on a 1 to 2% profit margin, but many grocery companies grow sales and earnings for decades. Family Grocery consistently generates a 3% profit, which is higher than the industry average. An inexperienced lender might be concerned about such a low profit margin, but Family Grocery produces good results for its industry.

Sales cycle

Grocery stores have relatively low profit margins, but short sales cycles. Consumers buy the same groceries from Family Grocery month after month, and that generates consistent sales. Patty’s business generates the cash flow necessary to make payments on a loan.

Products with a long sales cycle generate inconsistent sales results. A tech company selling an expensive software product may require 18 months- or years- to make a sale. Sales and profits can vary greatly from one month to the next.

Finding repeat customers

How do businesses find and retain customers in your industry? The answer has a great deal to do with long-term profitability.

The cost of acquiring a customer, also known as customer acquisition cost (CAC), is the amount of money needed to persuade someone to purchase your product. Successful companies aim to reduce their CAC continuously. By establishing a strong brand, businesses increase the likelihood of consumers being familiar with and having confidence in their company. For example, if you are satisfied with your iPhone, you are more inclined to buy a new Apple product. Apple's strong brand recognition enables them to spend less on advertising and still generate sales through their reputable reputation.

Another important metric is monthly recurring revenue (MRR). This number represents the amount of revenue that your firm can expect every month. Again, grocery stores have a high level of MRR, along with companies that sell a product by subscription. Think about NetFlix or Disney+.

Family Grocery has a high level of MRR. The firm advertises using newspaper ads, billboards, mailers, and through social media. The company’s CAC is relatively low, however, because Family Grocery has great brand awareness in the community. Customers already know about Patty’s stores- they just need an extra push to become customers.

Work with an expert

When Patty meets with prospective loan officers, she asks about their experience working with grocery stores. Family Grocery performs well, and Patty needs a banker who understands her industry.

The new bank will also review the owner’s personal history, from a financial point of view.

Personal history

A business owner with prior success in an industry is more likely to succeed, and bankers value experience. Patty’s family has operated Family Grocery for 80 years, and she has personally managed the stores for 15 years. She knows the industry, and how to manage a profitable business.

Personal creditworthiness may also be a factor, particularly if you need a business loan down the road. How you handle personal finances is important to a loan officer. If you’re willing to move personal investment assets to the bank, you can build a stronger relationship.

Patty’s business success has allowed her to maintain a high personal credit score, and she has accumulated a large investment portfolio. Her personal financial history is a plus to a loan officer.

Think carefully about the services you need from your bank, and how your needs may change due to company growth. Find out if the bank works with companies of your size, and firms in your industry.

Many successful business owners are frustrated with their banking relationships. They manage profitable companies, but some banks are unwilling to provide loans to finance growth. Talk with the bank’s loan officer, and determine if they understand how you operate.

Banking Services

You may need a number of banking services to operate your business, and you need a bank that’s responsive.

You’re busy, and the fastest way to get your questions answered is to make a call or start a live chat session. Ask your bank about response times for customer service calls and live chat sessions. Is the online banking system easy to use?

Mobile banking is an important tool you need from your bank. You should be able to scan and deposit checks on a mobile device, and access all of your bank information using mobile.

Credit card processing

Your business should accept credit cards at physical store locations and online purchases. Credit cards provide another payment option for customers, and credit card use is growing. So you’ll need a bank that can process credit card payments for your customers.

Customer preferences

Accepting credit cards will give you an advantage over small business competitors that don’t offer the card option. Your chances of getting a sale increase if you accept credit cards, and customers more often than not will make bigger purchases.

Your bank must be able to integrate with credit card processing vendors such as QuickBooks. If the bank can’t provide the integration, you need to find another banking option.

How credit card payments work

Follow this guide to put a credit card processing system in place.

First, you need to set up a payment gateway. Your gateway facilitates transactions from a payment portal, which may be your website or point-of-sale (POS) terminals in a retail setting.

The credit card payments move from the payment portal to a processing entity, typically a bank.

Here’s what happens when your customer pays by credit card:

• The transaction is approved by the processing entity
• The dollars are posted to your company’s merchant account
• Dollars in the merchant account are moved to your business bank account

Start the process by setting up a merchant account. These accounts include a setup fee that can range from $50 to $200. By setting up a merchant account, you avoid paying the higher fees that a third-party processor charges to process credit card payments.

To use your merchant account, you’ll pay a fee per transaction, or a monthly fee. If you have physical store locations, you’ll also need POS terminals.

A merchant account can be integrated with accounting software, and the combination offers some great features; You can create invoices automatically, offer a credit card payment option for invoices, accept payments by phone or through mobile credit card readers.

Best of all, the payment data and accounting activity is updated in real time.

Some businesses accept payment using ACH payments, but credit cards are becoming the preferred payment method for your customers. Your bank should be able to set up a credit card system quickly, and process payments at a reasonable cost.

To simplify your accounting, you should automate as many routine tasks as possible, including bill payment.

Automated bill payment

Your bank must be able to integrate your bank account with your accounting system, so you can set up automated payments to vendors.

Make the effort to pay all of your vendors electronically. Automated payments are tracked in your accounting software, and you’ll have a complete audit trail for each transaction.

Each purchase should require an approved purchase order (PO), and the PO must be compared to the actual goods or services provided by the vendor. Before you make an automated payment, review the PO and the vendor’s invoice. You can automate this entire process and file the documentation electronically.

Paying by physical check increases the risk of fraud, and you’ll have to manage paper documentation. If you issue physical checks, the bank reconciliation process is more time-consuming. Work with a bank that provides reliable automation for bill payment.

Payroll processing

Your bank must also provide integration tools to automate payroll. A small business must complete these steps to calculate payroll expenses and submit tax payments:

• Data collection: When an employee is hired, you need to collect information to withhold the proper amount of payroll taxes. Employers must withhold federal income taxes, and may withhold dollars to pay for company-provided benefits. If, for example, you offer a retirement plan, a worker may want payroll dollars withheld and invested in the plan.
• Calculating net pay: The net amount of employee pay is the gross pay less tax withholdings, less any benefit payment withholdings. You’ll also calculate withholdings for Medicare and Social Security.
• Payments: You must pay each worker by check, or via direct deposit to a bank account.
• Reporting: A tax filing for federal ‌and state tax withholdings must be submitted to the IRS and the state department of revenue. Retirement plan contributions, state unemployment payments, Medicare taxes, and Social Security taxes are reported to other entities.
• Withholding payments: All of the tax and benefit payments must be sent to the taxing authorities, retirement plan firms, and other benefits providers.

Fee structure

Banks are under pressure to reduce fees, due to customer expectations and improvements in technology. While bank fees for individuals may be relatively high, business owners can negotiate reasonable fees on transactions.

Typical bank costs include fees for ATM usage, checkwriting, paper statements, wire transfers, and a monthly maintenance fee.

Your banker wants to establish a long-term relationship with a business that is growing. Use that knowledge when you discuss fees and costs.

As you look for a bank to meet your long-term needs, you can also review the type of business accounts they offer. The type of small business checking account you choose will vary, depending on your needs and creditworthiness.

Comparing bank accounts for small businesses

Here are some factors to consider as you choose a bank account.

Annual percentage yield

To assess your bank account options, you need to understand the annual percentage yield (APY).

APY is the rate of return (interest) you earn on savings accounts, checking accounts, and certificates of deposit (CDs). The APY rate assumes that your interest is reinvested in the account, which means that interest compounds.

It’s important to understand APY, so that you can compare the interest rates offered on bank products.

Minimum balance

If you must keep a minimum account balance, cash management is more difficult.

The minimum balance reduces the amount of available cash in your account, and you’ll have to plan cash flow more carefully. The requirement may be stated as a minimum daily balance, or simply as a minimum balance requirement.

If you see any language regarding a minimum balance, ask the bank to explain how the required balance is calculated.

Fee structure

The type of fee charged is just as important as the dollar amount of each fee.

Many accounts charge a monthly fee, and you can compare the dollar amount charged by different banks. 

A growing business makes more deposits, writes more checks, and processes an increasing number of debit and credit transactions. Some businesses incur big transaction fees as the company grows. Make sure that you understand how fees are charged.

Many online banks—those without physical bank locations—offer low-cost account options. You can find online accounts that offer the same level of FDIC insurance provided by traditional, brick-and-mortar banks.

Here are the best bank accounts for small businesses.

Best small business bank accounts

The best account for your business will differ based on your needs and preferences. Let’s take a look at our top choices. 

Best overall

Azlo provides an FDIC-insured online banking account for small businesses. You can pay vendors and send invoices using the bank’s mobile app. Note, however, that Azlo cannot accept cash deposits and does not process physical checks. If your customers are comfortable with paying electronically and not using cash, Azlo is a good option.

Best no-fee checking account

NerdWallet ranks Axos Bank and BBVA as the two best checking accounts that don’t charge fees. Axos is primarily an online bank, while BBVA operates online and through bank branches.

Best accounts for online businesses

Capital One has a high level of brand awareness due to the company’s extensive advertising campaign. The Spark checking account offers these features:

• No monthly maintenance fees or any monthly transaction fees
• No transaction limits
• No minimum balance required

The Spark account is a convenient, low-cost option for online businesses.

Accounts for businesses with bad credit

Everyone makes mistakes, including business owners. If you have poor credit, you can still find a business bank account.

DoughRoller recommends several accounts, including the Wells Fargo Opportunity checking account. You’ll pay a $10 monthly fee, but the fee can be waived based on direct deposits and your average balance.

What to do next

You need a bank that provides the services you need and offers a checking account that works for you. Follow these steps to find your bank account:

• Determine what you need: Meet with your staff, think about your business processes, and decide on the banking services your firm needs.
• Have a discussion: Contact banks and have a conversation about your needs and the services they provide. Your banking relationship is important, and you need to do more than simply check a website.
• Apply for an account: Most account applications can be completed online.
• Start banking: Once you’re approved, submit your opening deposit and start using the account.

How QuickBooks Online Can Help Your Small Business Finances

When it comes to managing your finances for a small business, integrating QuickBooks Bank Feeds can be a game changer. These integrations seamlessly connect your QuickBooks account with your bank, creating a direct and automated link that greatly improves your financial management process.

How does it work?

The integration of QuickBooks Bank Feeds works by syncing your bank transactions directly into your QuickBooks account. This eliminates the need for manual data entry or spending hours reconciling transactions. The integration does all the hard work for you, ensuring that your financial records are always up-to-date and accurate.

Benefits for small businesses

Let’s check out the benefits of integrating QuickBooks Bank Feeds into your small business bank account. 

Real-time updates

With QuickBooks Bank Feeds, you receive real-time updates on your financial transactions. This means you can instantly see an overview of your cash flow, expenses and income without any delays from manually inputting your data. 

Reducing the chance of errors

Manual data entry often carries the risk of human errors. By automating the process through QuickBooks Bank Feed integrations, you minimize the chances of mistakes in your financial records. This helps you keep more precise financial records. 

Saving time

Time is valuable, especially for small businesses. Automating bank transactions reduces the time you spend on manual data input and reconciliation. This allows you to focus more on growing your business and spend less time on boring administrative tasks.

More financial visibility

By integrating your bank transactions into QuickBooks, you can get a better look at how you’re doing. QuickBooks organizes and categorizes transactions, providing clear insights into your spending habits and trends. It helps identify areas where you can optimize your budget.

Reconciliation

Reconciliation becomes effortless with QuickBooks Bank Feeds. It automatically matches your bank transactions with those in QuickBooks. This makes it simple to identify any problems, ensuring that your financial records are always the same as your bank statements. 

Better decision-making

Making Informed decisions is crucial for the success of your business. Integrating QuickBooks Bank Feeds empowers you with precise and timely financial information, enabling you to make well-informed decisions that drive the growth of your business.

Empower your finances with accounting software for small businesses with QuickBooks Online today.