Alright, folks, it’s time to roll up your sleeves, grab a cup of strong coffee (or a stronger martini, we don’t judge), and prepare to dive into the exciting, riveting world of… business banking. Yes, I hear you groaning from here but hold on just a second. Business banking doesn’t have to be as dry as the martini you’re sipping (seriously, how many olives did you put in there?).
Do You Even Need a Business Bank Account for an Online Business?
Contrary to what you may believe, even bloggers should seriously consider having a business bank account. I know. It’s tempting to think that it’s unnecessary. You’re just posting some words on the internet, right? Wrong. You, my friend, are running a business. And like any self-respecting business owner, you need to have a place to store all that hard-earned cash you’ll be making.
There are many reasons for setting up a business bank account, the most important being keeping your personal and business finances separate.
Here are some other significant benefits:
- Your authority and reputation are greater when you have your own banking
- Business to Business invoices and payments are easier
- It is much simpler to handle your annual taxes, especially if you are audited
- You are less likely to have your business classified as a hobby by the government, reducing the chance of losing your business tax break
- Business changes such as a sale or a shut-down are more straightforward when you have a separate banking account
- If your business is an LLC, having a separate business bank account aids in protecting your assets from any legal actions aimed at your business.
- Building business credit can be more challenging than personal credit, and having its own separate bank account helps get the ball rolling.
How to Set Up a Business Bank Account
Setting up a business bank account is easy, but it may take a few days to get everything done.
First, select the correct type of business bank account. At a minimum, I recommend getting a business checking account to handle the day-to-day stuff. If you can, also open a business savings or money market account, ideally with some percentage of dividend paid on it. A business checking account is crucial for everyday transactions, while a savings or money market account can help you put aside funds for the “Oh, no! My laptop just died, and I need a new one!” emergencies.
You should make regular deposits into savings, even if small. That not only builds a habit of saving money for your business, but the regularity of the deposits helps build credit.
Second, find a bank, local if possible, that provides you with a business checking account that has no monthly fees, low or no minimum balance requirements, low or no transaction fees, quality customer service, and either physical branches or ATM access near you. While local branches are less critical than they used to be, it sure is nice to have someone you can go and talk to in person when those unexpected things come up. Credit unions are an excellent place to begin your search, as they tend to have friendlier terms for businesses. If you’re lucky, you’ll find one with complimentary coffee in the lobby.
Third, get your ducks in a row and gather all the information and documents you’ll need to slay the dragon of bureaucracy. The bank needs to verify your and your business’s identity. While the specific documents vary from bank to bank, these are some general pieces of information you will need:
- Business’s legal name and DBA (Doing Business As) name, if applicable
- Ensure your business name and DBA, if applicable, can be found during a business search for your location
- Employer Identification Number (EIN) or Social Security number and card for sole proprietors
- Any applicable business formation documents for your LLC or corporation, such as your Articles of Incorporation or Statement of Organization (Not needed for sole proprietorship)
- Business license
- Ownership agreements if your business has multiple owners
- A resolution identifying authorized signers if your business has multiple owners
The Cost of Opening a Business Bank Account
Bank accounts may have a minimum deposit required to open the account. A typical requirement is $5 for a savings account and $100 for a checking account, although some require no minimum deposit. Check with multiple banks in your local area. You can also consider online banks that have ATM access local to you.
There are ongoing monthly costs to consider. For example, my credit union charges a $12.50 per month service fee for a regular business checking account unless a $5,000 minimum balance is kept, but they have another better account type. It is called small business checking and has no monthly service fee or minimum deposit requirement.
For savings, if you anticipate a small number of transactions, check to see if your bank has a money market account. If so, you should earn a better dividend rate with it than what you will get on a savings account.
Before opening your business checking account, determine your total cost by verifying if there are any monthly maintenance fees, transaction fees, and any other potential charges that might apply. Check to see if they charge for that coffee I mentioned earlier. Look for business-friendly banks that either do not charge these fees or else the fees are low and reasonably within your budget.
Using a Personal Bank Account for Your Small Business
At this point, you might wonder, “Can’t I just use my personal bank account for my business?” Well, technically, you can. But it’s about as advisable as writing your blog posts with a quill and parchment. While it may seem convenient to use your personal bank account for your small business, mixing personal and business finances leads to messy bookkeeping, complicates tax preparation, and exposes you to legal issues.
Using a personal account also means people must write a check to your name instead of your business name. This may be fine for someone providing personal services, such as lawn or car washing services, but as an online business, people are much less likely to send a check to a personal name. This can cost you sales.
A business bank account creates a clear financial separation between your personal and business finances. This makes it easier at tax time and is especially important for limited liability companies and corporations to protect their personal finances against legal actions.
Inheriting a Bank Account When Buying a Business
Buying a business is complex, and handling the bank account is one of the nuances. For security and legal reasons, you can’t just claim the previous owner’s bank account along with their office chair and coffee mug. You should have a lawyer protect your interests at this time to ensure you have access to everything you should, and don’t get stuck with more than you bargained for, such as an unknown bank loan in the business’s name. Banks require all individual account holders to be identified. Typically, the existing business bank account will be closed by the previous owner. As the new owner, you will set up a new business bank account tied to your name.
