Check out the benefits of having a business savings account and checking account, seven reasons why you will need an account, mistakes to avoid, what you will need, and how to choose the right account.
Benefits to having a business account
You may be wondering why a business checking account or savings account is different from your personal bank account and why you should go through the trouble of setting one up. Especially if your business is not bringing in a lot of money yet. At first glance, you may see the extra fees associated with a business account and be tempted to put this off, but the pros easily outweigh the cons. Here are perks unique to business accounts:
Protection
Business accounts protect the qualifying account holder by offering personal liability protection by keeping your personal and business funds separate. Merchant services also protect your customer’s personal information with added security measures.
Professionalism
Your customers will feel safer being able to make payments by card or check directly to your business versus to you personally. Having a small business checking account also allows employees to handle banking tasks on behalf of the business.
Preparedness
When setting up a business account, it comes with a line of credit for the business in case of emergency or big purchases.
Purchasing power
Most people do not have the extra funds needed for a business start-up, so this will enable you to get business credit cards that will help you get your business off the ground and build your credit.
Seven reasons why you need a business account
Now that you see the benefits of having one, let’s go over a few reasons why you will need one and how you will know it is the right time.
Clean and accurate bookkeeping
You may not have many transactions to separate from personal and business in the beginning, but that number will add up as your business grows. Once tax season rolls around, and you have a clean record to give your account, you will be so thankful you made this decision early on. Also, be sure to keep all receipts and invoices to give your accountant.
Legitimizing your business
Your fun hobby or side hustle that is growing beyond what you would have imagined may not be a side hustle or hobby anymore but a legitimate business. You will now be able to make business write-offs and deductions and reap the benefits of being a business owner. This is also a way to maintain good standing with the IRS and other financial institutions to avoid audits.
Separate accounts are required for incorporated business and business loans
The IRS requires separate accounts if your business is incorporated, and yes, that includes sole proprietorship and partnership. This sets the business apart from you personally, which is very important for many reasons. If your business needs any loans, you will need a business account.
A clear audit trail for the IRS
No one likes being audited, and hopefully, it will not happen often. But it is likely to happen some over the years that you are in business. Having a clear trail of all expenses, invoices, and receipts will make the process a breeze. Unorganized bookkeeping is a complete nightmare if you are selected for an audit.
Professionalism
This is huge in the eyes of those you are doing business with and gives people security when exchanging money for services. This is also necessary to accept debit card and ACH transactions and set up a sales system point. When people see your business name on invoices and checks, it reemphasizes the legitimacy of your business. This is great for the IRS as well.
To protect your personal identity
This is necessary as a business owner. At some point, you may have fraudulent activity, identity theft, or heaven forbid your business goes under. Keeping your business separate from your personal information and personal finances will save you and your family from disaster if it ever strikes.
Building a business relationship with your bank
As your business grows, this will help you immensely. Building good credit, receiving loans for any large business expenses, and having credit cards for you or employees linked to your account will be very beneficial. As you can see, there are so many benefits, and to make this process easier, let’s also go over a few mistakes to avoid.
Five mistakes to avoid when setting up your business account
There are a few common mistakes people make during business account opening that create quite a headache later down the road, and we want to avoid that at all costs.
Incorrect or missing information at account setup
When setting up your appointment with your bank, ask what paperwork and information you will need to set up your account. Coming to this meeting unprepared is where many business owners go wrong. Be cautious not to use your social security number when setting up your business account but instead use your federal employer identification (FDIC) number.
Not planning check-signing authorities
When you set up this part of your account, set it up with checks and balances in mind. If you have a business partner or are allowing staff to write checks, will the checks need multiple signatures or only multiple signatures once a certain dollar amount has been reached?
Choosing the wrong bank
According to Seed’s research and studies, 63% of business owners choose the same bank for their business that they use for their personal account. Depending on what bank you are using, it may not be a bad thing, but it is best to do some research and find out what banks offer cash-flow insights and reports, transaction services, and their minimum balance requirements and monthly fees. 40% of small business owners pay monthly maintenance fees or transaction fees and miss out on free business banking service options. $20-$25 a month in service fees may not sound like much, but every dollar counts when you are a small business owner.
Ordering the wrong checks
New business owners will order checks with their DBA (Doing Business As) or personal identification instead of their legal name, which will cause problems down the road. If your business accepts online credit card payments, this could result in online banking fraud, and many credit card merchant processors require that the company’s legal name match a voided check to ensure they are the same. Many banks also offer electronic check printing that is compatible with online business accounting software, such as Quickbooks, as part of their package.
Not maintaining the minimum monthly balance
Avoid paying unnecessary fees by maintaining a minimum amount daily in your account. To be on the safe side, try to keep a surplus above the minimum in the account
What you will need to set up your account
Be sure to check with the bank beforehand, but here are a few things you are sure to need:
Choosing the right business account
Business accounts have limitations and benefits that serve and protect your business. Here are a few things to consider when picking an account for your business.
Setting your business up for success
We hope this information helps you set your business up for success. Starting a new business is a lot of work, but with the right information and help along the way, it can certainly go smoothly, and your business will be thriving in no time.
