A business bank account is a must-have for every new small company. You may believe that operating out of your bank account would save you money and time, but having a business bank account will pay for itself in various ways as your company grows.
With all of the complications of running a company, keeping your personal and business funds separate can provide you with more clarity about your operations and preserve your assets.
A business bank account also permit you to create a commercial connection with your bank and your banker to expand your financing options as your company expands and prospers.
This article will discuss numerous arguments as to why you should register a business bank account. We’ll also walk you through how to create a business bank account with the correct information and documents and reassure you about how easy it may be.
What Are the advantage of Having a Business Bank Account?
Combining your company and personal banking accounts may not seem a significant concern at first, and you may be correct. You’ll most likely be utilising your assets to help your firm get off the ground, and transferring money back and forth between your personal and business accounts may seem inconvenient.
However, combining your finances may cause more problems than the benefits you believe you are receiving. The lack of division might also make it difficult to see how well your firm is doing immediately away.
When you learn how to create a business bank account, you obtain the following benefits:
Legal Liability Insurance
When you keep your funds separate from your company finances in your bank accounts, you have a higher chance of protecting your assets from legal liabilities. When your personal and corporate assets are kept separate from the start, anybody suing your company will have less access to your assets.
When you form your firm as a Limited Liability firm or a Corporation, you may add an extra layer of protection. However, if your firm is issued, the court is less likely to award access to your money if you can show that they were legally segregated from the start. Personal assets are also protected under certain state regulations in a company collapse.
Compliance with the Tax Code
It’s difficult to stay on top of taxes without adding personal and corporate money to the mix. The good news is that most of your company costs may be deducted from your taxes. However, when your personal and company money are mixed, the line between deductible and non-deductible spending blurs, something the IRS doesn’t like. Muddy finances create warning lights that may lead to an audit, which is the last thing you want to deal with in your company’s early years.
Tax compliance becomes considerably more difficult if you do business across state boundaries or international borders. Separating company and personal money will be even more critical in this situation.
Being able to accept credit cards is a must.
You’ll need a business bank account if you wish to accept credit card payments at your company. When you use a third-party organisation to process credit cards, the money is sent straight into your bank account. Because businesses must adhere to financial-services legislation, most will not accept a personal bank account for such transactions.
Credit card processors are obliged to check their clients’ accounts regularly to guarantee that only legal business transactions occur. These regulations are intended to prohibit money laundering via credit cards.
Checks from the company
If you have a business checking account, you may have checks printed with your company name, logo, address, and phone number. Companies with whom you conduct business, such as distributors or suppliers, are more likely to accept a corporate check than a personal check. If you were to pay with a money order or cashier’s check instead, this saves you time and potentially money.
Company checks would be preferable when dealing with landlords, utilities, and other businesses.
Credit Lines of Credit
Developing a business connection with a financial institution also increases your chances of obtaining a business line of credit.
Lines of credit are effectively open-ended loans that provide you access to a certain amount of money. You take out the money you need when you need it, and you only pay interest on the part of the line of credit that you use.
A line of credit is especially useful for seasonal businesses that need to acquire merchandise for a certain period of a year and then repay the loan when the product is sold. Another example would be a construction business that requires supplies throughout the construction time and repays the loan when payments are received from the customer.
The amount of the line of credit will be determined by your company’s demands. A business may need a few thousand dollars to stock up on merchandise, but construction might cost hundreds of thousands.
Lines of credited often have lower interest rates than other short-term loans that may be used to meet the same sorts of obligations, so having a good connection with your bank is crucial.
Is it Possible to Run a Business from a Personal Bank Account?
If you don’t know how to create a company bank account, you may utilise a personal bank account for business purposes. Small, home-based firms, especially sole proprietorships, often utilise their bank accounts for business without difficulty.
We’ve discussed few of the benifits of having a business bank account and some of the drawbacks of having a personal bank account. Let’s go through them again for a minute:
It’s difficult to keep track of company costs: You’ll want to deduct your business expenses from your income at tax time, so keeping track of them is crucial. When you can quickly grasp your revenue and costs, you will also have a better understanding of the health of your firm and how you may improve your operations.
Personal financial risk: Starting a company has several legal risks that might be costly. Separating your personal and corporate funds might help shield you from business liabilities.
Privacy: If you run a company with partners or workers, you can better protect your funds by using a corporate bank account. If you need a bookkeeper to assist with payroll, you probably don’t want them to have access to your accounts and spending patterns.
To open a business bank account, what do I need?
You don’t have to be scared by the process of opening a business bank account. It will be a bit more complicated than creating a personal bank account. Still, once you understand what paperwork is necessary to create a business bank account, it will be rather simple. This paperwork establishes your company’s validity.
The documentation needed to create a business bank account differ from bank to bank, city to city, and state to state, but there are some fundamental guidelines. A smaller local bank may not demand as much documentation as a larger national bank. On the other hand, a larger bank may be able to provide additional services to your company, such as lines of credit or stronger contacts with the Small Business Administration (SBA). The Small Business Administration (SBA) is an excellent source of loan guarantees for small enterprises.
Check with your bank or a national bank as you discover how to create a business bank account to get an answer to the question: What do I need to open a business bank account? Below, we’ll go through the fundamental documentation needed to create a business bank account:
Social Security Number or EIN (Employer Identification Number)
Although you may establish a small company as a single proprietor using your Social Security number (SSN), business experts strongly advise that any business endeavour acquire an Employer Identification Number (EIN) from the IRS. You will need an EIN if you create your firm as a general partnership, limited liability company (LLC), or corporation. You’ll also need an EIN if you want to recruit people.
While most banks need evidence of your EIN as part of the documentation needed to create a business bank account, smaller, local banks may not.
An EIN may also be used for other objectives, such as proving your firm to wholesale suppliers so you can buy products at a lower cost. Commercial landlords may also demand an EIN if you need to rent office or warehouse space.
Identification of the individual
All persons named as owners of the account will need to present personal identities. Official government-issued IDs, such as a driver’s licence or passport, will be required. You’ll also have to demands your Social Security amount.
You may be required to show residence documents, Individual Tax Identification Numbers (ITINs), and/or work permits if your owners are foreign-born. This, too, might be influenced by bank rules or state legislation.
Documents for Starting a Business
The documentation needed to start a business will differ from state to state. In certain states, alone owners may not be required to register their firm. Other states require all enterprises, including home-based firms, to register, even if they are as basic as working as a graphic designer without ever having customers in your house.
Other forms of company formations, such as partnerships, LLCs, and corporations, will be required to register in most states. The Secretary of State is in given of certain registrations, while the Commerce Department handles others.
Some municipal governments also demand that businesses be registered. For example, if you reside in a major city like Arizona, you will almost certainly need to register your company with the state, county, and city.
One of the most significant papers needed to create a business bank account is a copy of your company registration documentation.
Ownership Contracts (for Joint Accounts)
Most banks will ask you to include an ownership agreement among the documentation necessary to create a business bank account if you want to run your firm with more than one owner, whether as a partnership, LLC, or corporation. Even if you are relatives or closest friends, an ownership agreement is the best practice for any firm that includes several owners. An ownership agreement will almost always be necessary for state or municipal registration.
You may make your agreement as basic or as complicated as you like. It should have the following features:
Ownership percentages: These are usually equal amongst partners, although they might vary based on each owner’s investment and their future time commitment. So, if you want to provide a minority or female owner with a 51 per cent interest, it may open the door to certain contracts or financing choices. There may also be benefits for firms having a majority of minority or female ownership.
Owners’ responsibilities include: Define each owner’s responsibilities.
The location of the documents is: You should select a location for storing financial and legal papers and serving legal documentation such as subpoenas and summonses.
escape clause : Define how the company may cease or one partner can depart using an escape clause. For example, surviving partners would have a right of first refusal, meaning that a partner could not sell their stake to a third party without the partners’ agreement, or the partners would have the first choice to buy out the partner.
You may find ownership agreement templates online or hire an attorney or expert business consultant to draught one for you.
To open a business bank account, you must first make a deposit.
When you start a business banking account, most banks ask for an initial deposit. When deciding how to register a business bank account, you’ll want to think about how much to put in your first deposit. The bank’s criteria will differ depending on the bank and the sort of company you’re starting. Some banks may allow you to create a small business account for as little as $25 or $100. A bigger initial payment, such as $1,000 or $5,000, may be required for a construction company or a high-volume business like a restaurant.
When you consider how to open a business bank account, a more pressing topic is: What is the minimum daily average balance required to avoid increased fees? For example, a bank could provide free business checking if you keep a minimum daily average of $1,000, but you’ll be charged $50 per month if your daily average falls below that. In this situation, you may wish to make a larger initial deposit to avoid monthly fees, particularly if generating a continuous source of revenue may take some time.
What Is the Time Frame for Opening a Business Bank Account?
Once you’ve thoroughly answered the question: What do I need to create a business bank account? You should be able to open a business bank account in less than an hour. Your information will be entered into the bank’s computer system, and your papers may be scanned. They’ll also have to put down an initial deposit. If you go to the bank in person, they will offer you some temporary checks and debit cards printed with your firm name. You must be prepared to send cash for the first deposit if you wish to create a business bank account online.
How you make your first deposit may impact how fast you may access your funds. Some banks may keep money from a personal cheque for seven days before releasing it. You will have faster access to your amount if you make a cash deposit or use a cashier’s check. You may move money across accounts for quicker access if you set up the account with your bank.
Is it possible to open a business bank account through the internet?
The juiry of banks now allow you to create a business bank account online. To open a business bank account, you’ll need to be able to scan or photograph the required papers and attach them to your application.
You may now choose among online-only banks, which offer cheaper fees than traditional banks since they don’t have the costs of maintaining and staffing physical sites. Customers who are prepared to perform all of their banking online may get the same services at a lower cost from several big national banks.
Once you’ve worked out how to register a business bank account, online banking also has several additional benefits that are advantageous to a small company:
- Automatic bill payment:You may set up automatic bill payment for your monthly bills, such as rent and utilities, so you don’t have to remember when they’re due and stay on top of your payments.
- Accounting software integration:You may link your online accounting software to your company bank account. This safes you time by eliminating the need to re-enter your sales and expenses into your accounting software. You save time and prevent common errors that occur during data entry.
- Simplifying payroll:You may make direct transfers into your workers’ bank accounts whether you utilise a payroll service via your accounting software supplier, another payroll service, or your personnel.
- Credit card services:Online banking gives you access to many credit card servicing firms, many of which offer reduced rates when payments are made entirely online, removing the need for hardware.
