When so much work is dedicated to operating a small business, it can be easy to overlook certain essential elements. Too often small business owners forget to necessitate the importance of separating business and personal expenses.
Opening a business account is crucial for any new endeavor. It’s a critical step in legitimizing your business idea into a real business. It also makes it easier to manage budgets and expenses. Not to mention tracking business cash flow and capital.
A business bank account is also recommended for tax purposes, building business credit, debt liability, and to designate business write-offs.
With so many options for your business needs, opening up the right business bank account for your needs can be a daunting task. To understand where to start, here are five important tips to get your business ready for its new business bank account.
1. Determine what business bank account you need
It’s important to first setup your business administration by creating your business name and legal structure as well as company files, before shopping for the right bank account. The way you structure your business will have implications on tax payments, potential liability, and future funding.
Once your business has been formally registered with the appropriate local and federal agencies, you’re afforded the ability to open up a business bank account.
Your business structure will determine the right business bank account. With several to choose from, such as a business checking account, business savings account, and business certificates of deposit (CDs). It’s advisable to first open a business checking bank account before segueing into a savings account.
The transition to a savings account reinforces the focus of saving once the business is cash-flow positive. Certificates of Deposit is a long-term savings account that reduces liquidity, something most small businesses require in the early offset, making this a limited first bank account option.
2.Be aware of fees
The depository institution you choose will dictate certain factors such as number of available locations, online and mobile experiences, customer experience, bookkeeping integration, and overall costs and fees. Be mindful of fees once your business has decided on the right type of bank account it requires.
Most banks will be structured similarly with the exception of their overall costs and fees.
There are banks that provide free business checking bank accounts while other will charge. Generally, banks with required fees provide more services than those without. Besides, certain banks will waive their fees if specific criteria are met. These can include maintaining a minimum balance, spend, and bill payments.
Bank account fees are assessed according to the structure of the bank account. The typical bank account costs to look out for, particularly with checking and savings accounts are, monthly service and balance transfer fees, cash deposit fees, wire transfer fees, and minimum balance fees.
Typically, CDs come with early withdrawal and broker commission fees.
3. Find the right bank to build your credit
Once you’ve prepared your documentation and are ready to open your business bank account, be mindful of the opportunity to request a corporate credit card.
A corporate credit card provides your business the platform necessary to build a credit record. It’s important to find the right bank account that will provide your business with a secured credit card. Not every depository institution provides a secured card, so it’s important to compile this research while you shop different financial institutions.
A secured card is ideal for business owners with little to poor credit history. Secured cards operate similarly to personal debit cards in that they are backed by funds available in your account.
This card can be used to for small business expenses. Just remember to pay it back in full monthly so your business can build credit.
4. Understand the support your business needs
The relationship your business has with a financial institution is vital to the future success of your business. Therefore, it is crucial to think about the support and aid your business requires as it grows and changes.
Different institutions will provide various support systems. Some banks have specialists that will cater to managing and growing your business. Others will provide advisors in fund growth and business expansions. Some can assist with tax and payroll issues.
Accessibility is also essential to note. Does your business require a lot of online banking and does your bank provide the necessary technological structures to manage your business finances on-the-go? Are you able to make deposits through your mobile device or automate your accounts online?
It's important that the bank you choose has the platforms necessary to support different business needs.
5. Get your paperwork ready
Your business name and structure will format the paperwork to necessitate opening an account. Different institutions will have different requirements, so it’s vital all your paperwork is in order.
Often, when opening a business account, banks require a business license with both the business and owner’s name. They will also require your business name filing document. Check with your local and federal agencies for other necessary documentation. Most request your business registration forms as well as valid forms of ID.
Exact documentation differs according to your business structure. Additional documentation will be required for a Limited Liability Company (LLC) that may not be necessary for a sole proprietorship business. You must ensure all additional corporate documents are on hand with your business license when submitting your paperwork.
No business should function without a business bank account. Finding the right bank is a crucial step in your new endeavor. But as business structures vary, so do bank accounts.
It’s important to note which banks work best with your corporate structure and business needs. But just the same, your choice of financial institution is not permanent.
If your business requirements are not being met, you are unhappy with their services or have simply outgrown your selected bank, you can choose to change it up.
