If you want to start your business off on the right foot it is essential to open a business bank account. There are no two ways about it; it’s just smart business. Don’t stop reading here, I’m sure I can convince you.
Why Do You Need a Separate Account?
Your personal account is just that- personal. That is the account you buy your groceries with and pay for home repairs with. This money absolutely cannot get mixed in with your business expenses or you’ll be in over your head. There are several reasons why smart business owners have a separate bank account for their enterprise.
Simpler & Cheaper Income Tax Preparation
If you hire an accountant, they’ll have to spend much more time sorting through your personal and business transactions as they prepare your taxes. If your CPA charges by the hour not having a business bank account could cost you alot of money.
If you ever have your taxes audited you’ll be required to provide accurate accounting information for every business transaction. If those transactions are mixed together with personal purchases you’ll have a nightmare proving your case if the situation arises.
Business Credibility
Another reason to create a business account is because people will take you a lot more seriously if they can make checks out to your business. If you keep asking them to just make them out to your name it can signal shady businesses practices in the eyes of some people. It will also send the signal that you’re not in it for the long run. Those without a business account come off as if it’s a hobby.
Better Money Management
It’s far too easy to accidentally intertwine your purchases if you don’t create two separate accounts. When that happens you’ll be a lot more likely to have to choose between making a house payment or buying a new copier. Keeping these two accounts separate will make life easier and give you a better handle over where your money is going and why.
Reduced Liability
Many of us formed a corporation or LLC to help protect our personal assets. The legal protection & tax benefits of the “corporate veil” can be removed if the government determines you aren’t running your enterprise as a business. One of the things that indicates you aren’t a true business is commingling your business and personal funds, or treating your business’s money as your own. If you use the same bank account for your business and personal needs then you really are putting your business and personal assets at legal risk.
Can I Wait to Set up My Account?
Since I’ve convinced you (hopefully) that it’s a necessity to get a business account you probably have more questions. One of the money is when is a good time to set up a business account. The answer is easy- right away!
Some people think it’s fine to wait until they are more established or think it’s fine to wait until their business has ‘settled’. The truth is that you should open your business account right after you’ve chosen a name and registered your business. This will start you off on the right foot and will mean the difference between a business and a hobby.
When you set up a businesses account from the get go you’ll also be saving yourself a lot of work. Think of this- if you set it up months down the road you’ll eventually have to do hours of accounting to figure out how much you need to switch over, etc. That will not be a lot of fun, especially if you are busy as a bee.
I made the mistake of not setting up a business account and boy was that a mistake. I’m still going through and doing a self-audit to make sure that everything is separated properly. I’m also struggling to find the purchases that are eligible for a business tax deduction. How could I have saved myself hours of time? By setting up my business account right away.
What Will I Need?
You will need several things for when you set up your business account. It’s important to find a good bank because they all have different rates and fees associated with business bank accounts. Believe me, you really want to investigate this because business accounts are generally a lot more expensive than personal accounts.
Since you are a business, you will need the documents to prove it. This will include things like your articles of incorporation (if applicable), state business license, and proof of the type of business you run. There are different accounts for sole proprietors, partnerships, corporations, and non-profits. Check with your bank to make sure you will have everything you need because there are different requirements depending on the type of business you have.
If you are a sole proprietor like many small business owners you will need a fictitious name certificate if you’re going to have customers make out checks to your business name (recommended). The bank will keep your name and signature on file (as well as any that of any partners you have). If you are tax exempt you will also need to provide evidence of this.
No matter which type of business account you’re opening you will need to provide your social security number and/or Employer Identification Number (EIN). Just be sure to call ahead so you can gather up everything you need for your specific type of business.
How Do I Find a Good Bank?
Keep in mind that you shouldn’t just choose the first bank you come across. You do need to take the time to look at fees. Remember, these cost more to open than personal accounts.
Here are some things to look into before you settle on one:
• Minimum opening balance
• Minimum balance requirements
• Check writing abilities (some limit this!)
• Interest rate earned
• Internet Banking
• Merchant Account availability
• Ability to grow into a bigger account
Open Your Business Account Today!
Opening a business bank account for your small business is one of the best decisions you can make. Remember, it’s just good business when you do! You’ll spend less time on accounting, make things easier during tax season, avoid legal issues, and look more credible in the eyes of your customers. How many more reasons do you need to open a business account today?