Whether you are starting a new business as a sole trader, or getting incorporated straight away, there are a lot of things to think about – and a business bank account should be one of the first things you do when you get started.
A business bank account works in much the same way as your personal bank account; you can make purchases and pay bills as well as receive money into the account. With this in mind, it might seem simpler and cheaper to stick with your personal account when you are just getting started, but this is actually a lot more complicated in the long run.
If you are incorporated, you must have a business bank account according to the IRS. Even as a sole trader, there are benefits to separating your personal and business financial activity, including:
- Financial protection for your personal assets (and your business assets)
- Expenses are easier to handle and much more organized
- Tax time is easier because your business finances are all in one place
- Your business looks more professional as your bank account has your company name on it
- You can apply for a business loan if you need one in the future
You can choose the type of account that suits you – most businesses should have a checking account to make and receive payments, while others will also have a business savings account. Cash Management Accounts are multi-purpose and allow for both checking and saving, often with lower fees and higher interest.
Opening a business bank account is simple; you can do it online with most banks now, although you might want to book a physical appointment if you need help, guidance, or want to ask a lot of questions.
You will need to provide some documentation to the bank to open a business account, but much of this is quite simple. You’ll need to provide proof of your identity as well as your Employee Identification Number (EIN) from the IRS, any incorporation or ownership documents like a business license.
What to Look for in a Business Bank Account
You might be thinking about using the same institution that holds your personal bank account to open a business bank account, but there are plenty of places that you can open a business bank account, so it is worth shopping around to find one that suits you. Some of the things to look out for include:
Fees
Many bank accounts will charge a monthly maintenance fee, including business bank accounts. These are not usually expensive.
Some business bank accounts will have transaction limits, with charges made for transactions that go above the given limit, or they will charge you if you want to send money to India from out of the area, for example.
Some business banks will also require a minimum deposit to open an account, and some will have minimum balance requirements.
Features
The features of a bank account that mean the most to your business will depend on what you need. Some useful features include:
- Extra credit when needed
- Mobile access through an app
- Business credit card
- Merchant services to allow for credit and debit card purchases
- Automatic voucher checks
- FDIC protection and insurance for funds
- Support for foreign currency when needed
Offers
Banks want you to open an account with them, and this means that new account opening can lead to some exciting offers.
Don’t just be swayed by the shiny special offers, but if you find a bank that ticks all your boxes AND offers a good introductory offer, then you might as well choose them.
The offers usually include bonus cash for opening an account or holding a specific balance for a certain level of time, or it might be lower fees for the first month or year, for example. There might be offers for introducing someone new to the bank, too.
Know Your Finances
Having a good business bank account is one thing, but it won’t help you magically manage your finances – you need to keep an eye on your income and outgoings. You can do this by hiring an accountant, or you can manage it yourself by linking your business banking account to software like Intuit and take advantage of market-leading knowledge in small business accounts, tax, and fraud prevention.
