Business Checking Accounts – How And When To Open Guide

Business Checking Accounts - How And When To Open Guide

When you start a small business, one of the very first things you need to do is open a business checking account.

Why You Need a Separate Business Checking Account

Why can’t I just use my personal account, you ask. It’s a good question. Separating your finances makes it easier to file taxes because you know what was spent on your business (versus personal expenses). Should you — heaven forbid — be audited one day, you’ll streamline the process because all your financial information will be tied to one account.

But additionally, the day may come when you decide you want to take out a business loan for your company. Again, having those finances separated from your other accounts will make it easy for a banker to determine whether you’re a good risk for a loan. If she can see at a glance the revenues coming in and the business expenses going out, it’s that much easier to determine how quickly you might be able to pay off that loan.

And finally: having a separate business checking account helps you make more money! Now, in addition to cash payments, you can accept debit or credit cards and even mobile payments if you set up a merchant card processing service to funnel money into your checking account.

Now that you understand why you need to open a business checking account, let’s address the when and how.

When You Should Open the Account

In reality, you could open your account before your business even launches, but you will need a few things before you do.

The first is the easy one: a government-issued photo id, like a driver’s license. But you’ll also need several documents that prove that your business is set up legitimately.

First, you need to provide a business license, indicating that your city, state, or county has processed your application and that your business is ready to launch. If you have incorporated, you’ll need paperwork documenting that.

If you are doing business as (DBA), also known as doing business under a fictitious name (essentially if you aren’t operating as Jim Smith Consulting, you have or need a DBA), you’ll need proof of registration of your DBA.

And finally, you should bring your tax identification number. This is kind of like a social security number for your business, and you’ll use it when you pay your employees and employee tax.

What to Look for in a Business Checking Account

While most small business checking accounts offer similar features, they will vary slightly, and that’s where you have to make the decision about which is best for your business needs.

Some will include a large number of transactions per month without charging a fee for them. If you make deposits daily (like if you run a cash-heavy retail business), this might be essential for you.

Some have a lot of physical locations, which is something to consider. You don’t want to have to drive across town every time you need to go to the bank.

Fees vary with every bank. Some will waive the fee if you maintain a minimum threshold in your account, or if you link your checking to another account. Research fees for what you’ll need, such as wire transfers or higher than normal transactions.

Just about all banks offer some form of mobile banking, so if it’s important to you to, for example, deposit a check using your phone, make sure the bank you choose offers that service. Some banks are only online, which might fit the bill if you run an e-commerce business and all your payments run through your website.

How to Apply for Your Account

Once you’ve narrowed down your choice to one or a few banks that cater to small businesses and offer the features you want, go in and set up an appointment with a small business banker. Why? First, you’ll now have a point of contact at that bank for all your business banking needs. Second, she can educate you about other business services you might need down the road, like a loan or line of credit.

If you haven’t decided on the bank yet, bring a list of questions and “interview” each bank to make your decision. When you’re ready to open your account, bring all the documents listed above and be prepared to be there an hour or so as she inputs and processes your information.

You may be able to walk out with a temporary debit card and checks, which will get you up and be running until the permanent ones arrive in the mail.

A business checking account is essential for any small business. Put a little energy into choosing the bank that’s best for you, and you’ll be set up for success!

Author: Jay Egger