Business checking accounts can be an essential tool to businesses that have outgrown personal checking accounts or to savvy owners looking for perks. Many banks will prefer business owners to open a business checking account. That said, opening a business checking account also offers the business owner many benefits, just as having a business credit card makes sense for a small business owner.
Many business owners are tied inextricably to their businesses making it a little hard to find that point where one ends and the other begins. Fortunately most banks will help business owners make that decision especially if you process a large number of transactions each month. Before exploring benefits, first we need to look at when business accounts should be opened.
When should you open a business bank account?
As soon as possible. Creating business accounts is a vital part of starting up a business. A small business owner can look to open business accounts right after creating their Employer Identification Number (for taxes) Once your small business makes or spends money, open a business bank account. Business accounts aren’t limited to just a checking account. Business owners can open savings accounts & credit card accounts. This then can give the business owner access to a business debit & business credit card. Another step would be to open a merchant services account, so your business can accept credit and debit card transactions.
Once you have business accounts, what are some of the benefits?
Protection: First and foremost and not only for you, but for your customers as well. By using business accounts, owners keep personal assets and personal funds separate from business revenue and business transactions. Personal accounts that sole proprietors or limited liability company owners have can be protected. Merchant services accounts also provide protection to your customers that pay you with credit cards.
Structure: Customers will be able to pay you with credit cards and make checks out to your business instead of directly to you, which further separates personal assets and personal funds. If you have employees, you’ll be able to authorize them to complete banking tasks on behalf of the small business. With business accounts, you can keep your business accounting program records organized. A business accounts separate your personal and business transactions, so all your business transactions can be monitored on a separate statement. This makes it easier to monitor your business’ profitability and keep abreast of your company’s cash flow.
Stability: Business accounts help establish credit history for a company, especially if and when they want to expand and are looking for capital. A small business owner needs to have a relationship with their lenders. Opening business accounts with the same lender early on in your business’ life can create a good relationship. When a small business sets up all of it’s business banking, a line of credit is also an option. This can be used in the event of an emergency, or if your business needs new equipment. When setting up a small business, personal credit history is a huge factor in getting financing. However, once a business is looking to expand, having a history of dedicated business transactions is essential for growth.
Saving Money: While it might make sense for a small business owner to open business accounts at the same bank that they have their personal accounts at, it is also important to research and shop around for a bank that fits your company’s needs. The fee structure for business accounts are often different than those of personal accounts and savvy business owners can benefit from knowing what can work for them. Of course, owners want all accounts FDIC insured, but just as importantly, owners want to make sure they set up accounts that protect them from paying too much in transaction fees. Many banks offer ways to waive monthly fees if you maintain a certain balance or have a certain amount of transactions. They also offer other types of accounts that can also save money. Often times, it makes financial sense to bundle all accounts with one bank. While there may be other banks that offer individual accounts that have benefits for business owners, by looking at the big picture and working with one dedicated bank for all accounts, can not only save a business money, but save time too.
One Stop Shop: Business banking accounts can also save business owners time. By opening accounts with one lender, a small business owner can easily monitor all financial transactions. Also, in addition to having a business checking account that saves money, an owner can also have access to accounts that actually make them money. Many banks offer money market accounts that offer good interest rates (and might even have a high introductory rate) and they offer credit cards that can provide cash back for business expenses. Many banks also offer benefits if a business has different accounts with them, including waiving certain fees. Working with one bank also helps with organization and gives owners easy access to information which can help you with one of the biggest benefits of having business accounts – dealing with the Internal Revenue Service.
Staying on the “good” side of the IRS: In addition to helping a small business owner keep personal and business funds separate and organized, business accounts also help a business with tax preparation. If personal and business funds are intertwined, a business owner could risk IRS penalties if something in a tax return isn’t accurate. Also, if you have accurate business records, you can deduct business expenses on your business tax returns. No one wants to hear the word “audit” and in fact, only about 1% of businesses actually get audited, but for any small business, it’s always a possibility. When an audit does take place, a business wants all of their transactions in one place. If there is a mix of personal and business finances, an audit could be a businesses biggest nightmare.