We’re at the end of our deep-dives and it’s finally time to start raking in the dough and paying vendors. But wait. You don’t plan on using your personal account for that…do you?! Talk about a financial faux pas!
A business bank account is one of the most important tools for your small business. It keeps you organized, protects your assets, and offers an array of helpful features. Ultimately it will be the difference between “amateur hour” and “savvy entrepreneur” in the eyes of your customers and the financial institution you interact with.
Our final business deep-dive takes a look at business bank accounts. Keep reading to learn what they are, why you definitely need one, and the easiest way to get started.
What is a business bank account?
A business bank account is exactly what it sounds like—a checking and savings account for your business. No mystery there.
But what entrepreneurs may not realize is that these types of accounts come with some specific features beyond the basics. Payroll, cash flow management, merchant services accounts…all these could be yours when you open a business bank account.
Is your business incorporated or a partnership? You might be required to open a separate account depending on your business structure. Remember how corporations are separate, legal entities? Separate, legal entities need separate, legal bank accounts.
You’ll want to compare things like fees, minimum balances, and interest rates when choosing a banking institution. All the same rules apply as if you were shopping for a personal account.
Why do I need one?
Wouldn’t it be easier to just use your already existing personal account? A tempting thought. But combining business and personal finances is a dangerous slippery slope that can lead to commingling expenses — and you definitely do not want that.
Opening a separate business account is beneficial on many levels and is worth doing before your first transaction.
For starters, it provides asset protection. You don’t want to hand out your personal bank account information to every vendor you deal with. Keeping your finances separate shields your personal assets from fraudulent activities. Have an EIN instead of your SSN to open it with? Even better.
Organization not your strong suit? A separate account is a surefire way to keep your financial records tidy and clear. No chance of commingling here. Not only will your accountant love you, but you’ll be less likely to miss important business expenses for your taxes. Work smarter, not harder.
You’ll eventually encounter larger expenses as your business grows. Hopefully these will all be for expansion — although financial emergencies can certainly happen (knock on wood). That’s where credit comes in. A business bank account allows your business to develop a line of credit, open a credit card, and build the foundation for a loan with your banking institution.
Finally, a business bank account makes you look professional to the outside world. It’s crucial to inspire confidence in customers when you’re a new business. “Delicious Doughnuts” rather than “Louise Zuckerman” makes a lot more sense on someone's credit card statement.
Will that be Cash, Credit, or Debit?
What’s the perk/necessity combo you didn’t know you needed? A merchant services account is the key to accepting electronic payments by way of credit and debit cards.
Did you know that 80% of consumers prefer plastic over cash when making a purchase? Sure, in theory you could run an all-cash business. But that statistic suggests you better get with the times. And if you’re an online business? Fuhgeddaboudit.
This special type of business account works by partnering with a merchant acquiring bank to facilitate electronic transactions. Using an electronic payment terminal, the merchant acquiring bank chats with the credit card issuer to verify and “okay” a purchase within minutes. The miracle of technology!
Of course, this speedy, digital liaison comes at a price. You’ll be charged multiple fees per transaction on top of monthly fees for the account. So always shop around for the best deal.
How do I open an account?
Luckily, opening a business bank account can be a fairly painless process as long as you have your documents in order.
You’ve compared rates, features, and introductory offers to come to a decision. Now it’s time to get the application process going with these documents:
- EIN (or in some cases your SSN)
- Formation documents
- Business License
- Ownership agreements
Nowadays, you can apply online or in person. Be mindful that additional information or an opening deposit may be needed. Check with your local branch.
Ready to start?
You finally have a place to deposit your revenue—time to cut the red ribbon.
Opening a business bank account is the finishing touch to all of your hard work. Skip this last step and you could lose some serious money in the form of tax deductions or lines of credit.
Keeping your finances in order is crucial for a small business — especially one trying to get off the ground. And your business bank account is an incredibly valuable tool come tax time. The other most valuable tool you can have in your back pocket? A friendly, professional accountant. Contact KYN Accounting today for experienced financial advice from a small-business-savvy team.