As soon as you start receiving or spending money as a business, you should open a business bank account. A business account makes it easier to separate your personal finances from business finances. This can help protect your personal assets and make record-keeping simpler Not to mention, it also provides benefits to your customers and your employees.
How do you find the right account for your growing business?
Common business accounts include checking, savings, credit card, and merchant services. Here are a few questions to ask yourself prior to and during the account setup process.
1. Online vs. Brick-and-Mortar?
Many businesses are taking their finances to solely online institutions. There are benefits to consider for both. Online banks offer convenience as they can be accessed anywhere at any time. However, because of their nature, certain limitations may apply such as access to service personnel, mobile deposit limits (i.e. the typical limit on check deposits is around $5,000), and cash deposits. Traditional banks often come with more fees but also offer a wider variety of products and services. Having a local branch gives you access to business development representatives who are willing to meet in person, It cash deposits and more accessible and large checks are easier to deposit. Before you choose a financial institution to consider what services you may need for your business.
2. Regional or National?
Many business owners choose to open a business account at the same institution as their personal account for convenience. A small bank or credit union may not charge monthly fees for their bank accounts and are known for good customer service. Credit unions can also have higher cash deposit limits – up to $20,000 per month in some cases – which makes them a good choice for restaurants and other businesses which deal mostly in cash. You should also consider the size of the bank’s network. If you don’t need access to thousands of branches and ATMs, a credit union might give you lower fees and better service. Many credit unions may also be a part of the CO-OP, a network of credit unions across the United States allowing you limited access to over 80,000 branches and ATMs. Keep in mind that some institutions whether bank or credit union might have just a few locations and ATMs, compared with major bank chains, which can have a national or global reach.
3. Banking Fees?
Rates, fees, and options vary from institution to institution, so be sure to shop around to find the one with the lowest fees and best options. There are many free business checking accounts that don’t charge monthly service fees — but you’ll need to stay within cash and transaction limits to keep total costs low. Many institutions may waive monthly fees if minimum balances are met and/or merchant and card services are used.
4. Common Information Required to Apply?
- Business formation documentation such as articles of organization, filing documents, articles of incorporation and/or certificate of resolution
- Employer Identification Number (EIN) or Social Security number if you are a sole proprietorship. You can apply online in a matter of just a few minutes.
- Ownership agreements and information
- U.S. State or Territory business registration and license information
- Government-issued ID
Perks of a business bank account
By keeping your business funds separate from your personal funds, your business account offers limited personal liability. Having commingled accounts may put your personal assets at risk in a lawsuit. Merchant services also offer purchase protection to your customers as their personal information is more secure. In addition, using an EIN to set up your business account protects your personal SSN should fraudulent activity happen.
Customers and clients are able to make checks and ACH deposits to your business instead of directly to you. This not only looks more professional but adds to the credibility of your business. Employees can also be authorized to handle day-to-day banking needs and administrative tasks on behalf of the business freeing you up to spend more time on revenue-generating activities.
Opening a business line of credit or credit card is the first step in establishing business credit for your company. With a strong credit history, businesses are able to qualify for financing to make larger purchases such as equipment or machinery or expand their business when needed. It can also be used in case of emergencies.
Having a separate business account allows you to easily track expenses and then use it to deduct business expenses for taxes. It makes it simpler to know who you made, what you spent, and what is left. By mixing personal and business accounts, you can create accounting, bookkeeping, and tax headaches when it comes time to file your taxes.
5. Valuation during the Sale
When a business is sold, the bank account will transfer to the new owners. Having a business account will easily allow valuation analysts to track the performance of the business and see a history of its financial transactions. Supporting numbers can conveniently be found on bank statements a form of third-party verification. The sale of a business typically triggers an investigation process that’s very similar to an audit. In that situation, the more documentation that you can provide, the better. You certainly don’t want potential buyers looking at two or three years’ worth of personal bank statements. A business bank account can enable you to release the bank statements to a prospective buyer, without having to concern yourself with disclosing personal information.
Through a business account, you can obtain merchant or card services which allow you to accept credit and debit transactions from your customers. Accepting only cash or check payments may limit your customer pool and potential sales. By accepting credit cards you can serve a larger number of customers.
Although it may seem easier to use your personal bank account for business, taking the time to get a separate business bank account is well worth it. As a business owner, you’ll benefit from the ability to keep track of your budget and cash flow better, which results in money and time savings.
We at Peak Business Valuation work with a variety of businesses to help identify ways to increase their value. Even if you have not thought about selling your business or purchasing a business, it is never too early to start planning. The first step in that process is a business valuation, which we are happy to provide you with. We welcome any questions you may have. Feel free to reach out by email or through a phone call.