Why is a business bank account important?A business bank account makes it easy to keep track of business expenses. And it can help you take full advantage of tax deductions and credits available to small business owners. It’s a simple, low-cost investment that comes with a plethora of perks and protections for businesses. Among them, it separates your business and personal transactions, protecting your personal assets. Let’s take a look at some of the biggest benefits of a business bank account.
4 benefits of business bank accounts1. They safeguard your funds.A business bank account keeps your personal finances separate from your business funds. This protects your personal liability. If your business can’t pay its debts, your personal assets won’t be at stake. On the flip side, if you have an unexpected personal financial crisis, it won’t affect your business’s credit score.2. They can help you track expenses more efficiently.Separating your personal and business accounts allows you to track expenses, monitor spending, and create more realistic budgets for your business. Avoid accidental overspending and write off your business purchases with ease. 3. They promote better bookkeeping. Accounting is easier when you have a clear spending trail. A separate business bank account keeps your accounts and finances organized. So it’s easy to pull financial reports, prepare taxes, and generate accurate financial statements. 4. They can help you secure small business loans.When the time is right, you can open a business credit card attached to your business bank account. A business line of credit is a secure low-interest small business loan.
Business bank account optionsWhen it comes to opening a business account, you have a few options. Do your research and choose the account that makes the most sense for your business. Let’s take a look at the three most common types of business accounts.
Business checking accountsFor most small businesses, a business checking account is a good place to start. Once you’ve started making sales and spending money on business expenses, consider opening a business checking account. A business checking account allows you to do all the basic financial tasks you need to operate your business:
- Write and deposit checks.
- Transfer or receive money electronically.
- Withdraw or deposit money using a business debit card.
- Separate your business and personal checking accounts.
- Maintenance fees. Banks may waive these fees if you meet minimum balance requirements each month. Many banks make these requirements easy to meet for small businesses.
- Transaction fees. Many banks issue small fees if you go over your monthly transaction allotment. Typically, the transaction allotment is high and difficult to exceed.
- Early termination fees. If you close your account early for any reason, such as closing your business or switching financial institutions, your bank may charge you.
- ATM fees. Most banks allow you to withdraw from in-network ATMs without fees. Many will charge a flat fee for withdrawing funds from another bank’s ATM.
- Deposit fees. Some banks have limits on how much you can deposit each day, week, or month.
Savings accountsOnce you’ve got your business checking account up and running, a business savings account is a smart second step. Use a savings account in conjunction with your checking account to separate your savings from your working capital. A business savings account allows you to save a portion of your earned revenue and earn interest on the funds you set aside. Most business owners admit they don’t have enough cash in reserve to survive without revenue or cover an unexpected cost. A savings account can help mitigate financial hardship. In the event of an emergency, you won’t be left empty-handed. Look for a high-yield savings account with low fees and high interest rates. Some savings accounts require a minimum deposit to open. Some come with monthly balance requirements that you’ll have to meet. Many come with small monthly maintenance fees that your bank may waive if you meet other requirements. Remember, the goal is to save money, not spend it on unnecessary banking fees. Finally, the FDIC insures most savings accounts, but it’s always a good idea to check.
Cash management accountsWhen it comes to managing your business finances, banks aren’t your only option. There are plenty of financial institutions and cash management services to choose. Cash management accounts (CMAs) are an all-in-one alternative to traditional bank accounts. CMAs are online accounts that provide services similar to checking, savings, and investment accounts. Typically, CMAs offer high interest rates for savings accounts, lower fees than traditional banks, and business lines of credit. Business owners looking to simplify their finance management could benefit from a CMA. With a CMA, you can conduct all your business transactions from a single account. You won’t have to use separate accounts for separate functions. But a CMA has its drawbacks. Because CMAs are online-exclusive, you won’t get face-to-face customer service or the option to visit a physical branch. Additionally, banks and credit unions might offer higher interest rates on savings accounts.
How to open a business bank accountOnce you’ve done your research and determined what you need from your business bank account, it’s time to open your account. Don’t worry. It’s easier than you might think. Here’s what you’ll need to do:
- Special offers. Many banks offer enticing introductory offers, cash bonuses, and rewards for new accounts.
- Convenience. Look for financial institutions with physical locations in your area, plenty of ATMs, and mobile banking options. If you choose an online-only option, make sure you can contact help when you need it.
- Protection. You should feel confident that your business funds are in good hands. Look for banks that offer fund protection and insurance.
What information is required to open a business bank account?Opening a bank account of any type requires some personal information, and a business bank account is no different. Here’s what you’ll need:
- The legal name of your business as it appears on documents filed with your state or the IRS. If you’re a sole proprietor, you may need a “fictitious business name” certificate or a “doing business as” (DBA) certificate.
- Your employee identification number (if you’re an LLC or corporation). The bank will use this tax identification number to ensure your business is legitimate.
- Your business address. This should be the same address you used to license your business. If you’re a sole proprietor or don’t have a separate business address, you may want to invest in a PO box or alternate address.
- Basic contact information, including your company phone number, website, and email address.
- Your Social Security number, especially if your business is a sole proprietorship.
- Your driver’s license. Your bank will likely make a copy.
- Proof of identification, such as a passport or other form of photo identification.
- A partnership agreement if your business is a partnership.
- Articles of organization if your business is an LLC.
- Articles of incorporation if your business is a corporation.
- Your business license.
How much do you need to open a business bank account?You should open a business bank account as soon as you start making sales in your business and spending funds on business expenses. Some banks require a minimum deposit to open a checking or savings account. The starting amount varies by the financial institution but can be reasonable. Some accounts may also require you to maintain a minimum daily balance. So be sure to review any terms regarding the minimum account balance as you consider your options.
Can I open a business bank account online?Many banks offer the ability to apply for an account online or in person. And there are pros and cons to each. Opening a business bank account online can result in faster approval times, but you miss out on face-to-face support. If you have a lot of questions or you’re a new business owner, you might want to open your account in person to get the help you need. Your banker will likely give you their personal card for future communications. Typically, online-only accounts only offer a customer service phone number or live chat feature. You’ll likely speak with someone new each time you call or chat.No matter how you choose to open your account, you should have all the necessary information ready.
When should you open a business bank account?Effective money management is essential for any small business. And a business bank account is a good idea for all business owners. If you’re an LLC or corporation, you’re required to have a business bank account. If you’re a sole proprietor, you’re not required to have a separate account. But you may open one to help you keep business and personal expenses separate and manage your funds more easily.In general, you should open a business bank account as soon as you start handling business transactions. But before you do, make sure you choose the right account type for your business. Do your research to find the right financial institution, and get all the necessary documentation in order. You’ll be banking like a pro in no time.
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