How to Set Up a Business Bank Account
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From the moment your business starts to accept and spend money, you should have a business bank account. It benefits both the customers and employees of your business and gives you a professional way to run your business.
But what exactly is a business bank account, and why should you have one? In this article, we will break down what a business bank account is, how you can set one up, and why it’s beneficial for the growth of your business.
What is a business bank account?
Almost everyone has a personal bank account, but business owners looking to scale up their business need to start looking into business bank accounts. This account helps you separate your business transactions from your business transactions and can help you qualify for future business funding.
A business bank account also makes it simple for business owners to track gross revenue and gross profit. While some may think of these terms as interchangeable, they mean different things. Gross revenue refers to a business’s total revenue without deducting any costs. On the other hand, gross profit is the gross revenue subtracted by what it costs to make and sell the goods.
Let’s say you own a bakery and sell 300 cakes in November. Each cake costs $25, so your gross revenue for that month was $7,500. However, you incurred material and labor cost expenses of $2,450. This means that your gross profit is $5,050 ($7,500 - $2,450 = $5,050).
Benefits of a business bank account
So what are the benefits of a business bank account? There are several, but here are a few of the main perks of having one:
- Legitimizes your business and makes you appear more professional: Clients can pay your business instead of paying you directly with a business bank account. Not only does this make you look more professional, but it gives your business a real platform as well.
- Keeps your personal and business finances separate: Opening a business bank account protects your personal finances and keeps them separate from business finances.
- Makes accounting and taxes easier: Gone are the days of having to sift through dozens of personal purchases to find possible tax-write offs. With a business bank account, all your purchases are in one singular location, making tax season a lot easier.
- Protects you in case you are audited or sued: Although this is a worst-case scenario, your personal assets are protected if you are audited or sued.
- Makes it easier to get funding through grants, credit, or loans: A business bank account makes it much easier to get funding through grants, credit, or loans. In addition, once your bank account is established, you’ve likely started to build up a history of business credit, making your chances of securing funding much higher.
How do I set up a new bank account for my business?
The steps to open a business bank account vary depending on the bank and location of your business. Some banks will require an initial deposit to open your bank account with them. This could range from $5 to $1,000, but some banks may let you open an account without a deposit.
Most banks will require you to provide information including:
- Your name, date of birth, and Social Security number
- Contact information and current mailing address
- Government Issued ID (driver’s license/passport)
- Business Name and “Doing Business As” name (DBA) if necessary
- Business address
- EIN (Employee Identification Number)
- Entity Type/ Industry of Business
Entity Specific Documents
Depending on your entity type, you may be required to bring along these documents:
- Sole Proprietors: Business name registration certificate, business license
- Partnerships: Partnership agreement, business name registration, business license
- LLCs: Limited Partnership Agreement, business license, articles of organization
- Corporations: Articles of incorporation, corporate bylaws, business license
You can open your business bank account both in-person and online, depending on the bank. However, if you choose to do it at a physical bank location, all owners, partners, and key executives of the business must be present.
You can open your business account online if you have all the necessary documents, but keep in mind that it could take up to seven business days to approve your application.
While it may be less of a hassle to open your account online, opening your account in person means you’ll get your business bank card as soon as your account is set up. If you’re pressed for time, it may make more sense to go in person to open your account.
Do I need to establish my business entity before opening a business account?
Yes, you will need documents proving your business’s formation. You’ll need to register your business name and check to make sure that your business name is free using the U.S Patent and Trademark trademark database. Before choosing your name, you should also check if any other businesses have similar names that could overwhelm your business presence.
Once you have your name, register your business at your county clerk or state office and pay the fee to register your business name.
Do I need an EIN before I open a business bank account?
Yes, you will need to include your Employee Identification Number (EIN) in your documents to open a business bank account. If you are a sole-proprietor or Single Member LLC, you may be able to use your Social Security number.
Are there different types of bank accounts that exist for businesses?
You will need different types of bank accounts for various aspects of your business. Most businesses have a combination of these four accounts:
- Checking account: This account is used for everyday business transactions
- Savings account: Your business savings account is used to store extra cash and build savings with interest
- Credit card account: This account is used to build up credit for your business and improve your business credit score.
- Merchant services account: If your business accepts credit card payments, you’ll need a merchant account. You’ll need a business checking account before you can open a merchant account.
What should I look for in a business bank account?
Just because you already have a personal account with a bank, this doesn’t mean you need to open a business bank with them. Instead, take time to shop around and see what other banks have to offer.
Check to see that a business bank has:
- Introductory offers
- Interest rates for savings and checking
- Interest rates for lines of credit
- Transaction fees
- Early termination fees
- Minimum account balance fees
Look into whether or not the bank has additional services that they can offer you. For example, do they have merchant services? If so, make sure these services meet the following criteria:
- Minimum monthly fees
- Transaction fees
- Discount rates
- Address Verification Services fees to prevent fraud
- Low ACH daily batch fees
Business Bank Accounts Will Help Your Secure Funding for Your Business
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