Opening a Business Bank Account

by Jennifer Kiesewetter in September 15th, 2021
pink pig figurine on white surface

TLDR

  • With a business bank account, you can keep your startup’s financial transactions separate from your personal bills, helping you better track money for your new business.
  • In many ways, business bank accounts are similar to personal bank accounts. Both business and personal accounts offer checking and savings account options. Both typically have ATM cards. Also, both are subject to transaction fees, ATM fees, and maintenance fees (the amounts, of course, depend on your chosen bank).  
  • With a business bank account, you’re keeping your startup’s income and expenses totally separate from your personal funds—including both deposits and personal expenses. Separating your funds not only helps you safeguard your finances, but it also helps you better monitor and organize your startup’s income and spending.
  • Business accounts also make it easier for you to pull accurate financial reports—such as profit loss statements or cash flow reports—for your accountant or your investors.
  • Before you head to the bank to open your account, first you need to secure your federal employer identification number (EIN). You’ll need this identifying number for your startup to open your bank account much like you would use your social security number to open a personal account.
  • Additionally, you’ll need to gather some documents to open your account, including your startup’s formation documents, your business license, and personal information, such as your driver’s license, passport, or other government-issued ID, birthdate, and social security number.
  • You’ll need to decide which accounts your business needs, such as a business checking, business savings, or business money market account, or a combination of these. Typically, you’ll use your business checking account to receive customer payments and pay bills. Often, this account reflects your working capital. With business savings accounts, you can keep a percentage of funds that you may need in the future, for example, for scaling your business. Either account can earn interest.
  • Additionally, if you have customer sales, you may also want to open a merchant services account, where you can accept credit and debit card payments.
  • Once your account is set up, you’ll receive your account numbers and an ATM card(s) (if you so choose). Now, you’re ready to make your first deposit and start using your accounts for deposits and expenses.

With a business bank account, you can keep your startup’s financial transactions separate from your personal bills, helping you better track money for your new business. Business accounts also make it easier for you to pull accurate financial reports—such as profit loss statements or cash flow reports—for your accountant or your investors.

Like many facets of a new company, opening a business bank account can create numerous questions on your next steps. What documents do you need to open a business bank account? Are there any benefits of having a business bank account? Are you required to open a business bank account? Which account is best for your startup?

In this article, we will discuss business bank accounts and why they’re essential to your startup, helping you answer these many questions and more.

Should I keep business and personal expenses separate?

In many ways, business bank accounts are similar to personal bank accounts. Both business and personal accounts offer checking and savings account options. Both typically have ATM cards. Also, both are subject to transaction fees, ATM fees, and maintenance fees (the amounts, of course, depend on your chosen bank).  

However, with a business bank account, you’re keeping your startup’s income and expenses totally separate from your personal funds—including both deposits and personal expenses. Separating your funds not only helps you safeguard your finances, but it also helps you better monitor and organize your startup’s income and spending.

And just like you shouldn’t use your personal bank account for business expenses, don’t use your startup’s bank accounts for personal expenses—whether it’s for errands, restaurants, or paying down your personal debt. By keeping your spending patterns separate, you can better account for your startup’s finances to your co-founders and partners, your investors, and—of course—the Internal Revenue Service (IRS). More on that below.

While you can use the same bank or financial institution for your startup and your personal finances, it’s essential to the financial health of your business to keep things separate.

Why should I open a business bank account?

Having a business bank account can make your life as a founder easier. The last thing you want to do come tax time is to spend hours separating out personal expenses from those of your startup.

However, let’s look at some other benefits of opening a business bank account.

  • Protect your personal & business finances.

By having your startup’s bank accounts separate from your personal accounts, you can better manage your finances, as addressed above. However, mixing your personal and business finances can cause more than confusion—it could put your personal assets at risk if your startup is sued and you used your startup’s bank account for your personal benefit.

  • Allow others to access your startup’s funds.

When initially founding your startup, you probably wore one 1,000 hats all at the same time. As you grow and expand, more than likely, you’ll have other team members helping you run your business. For some of them, they’ll need access to the startup’s bank accounts as well—to pay bills, run payroll, or make customer deposits. After all, you don’t want your co-founders, partners, and employees having access to your personal account, right?

  • Give yourself purchasing power.

By establishing a business account for your startup, you also give yourself purchasing power. For example, along with your bank account, you can utilize other financial tools, such as credit cards or a line of credit, helping you to scale or to give you access to funds in an emergency.

  • Stay in good graces with Uncle Sam.

As we’ve discussed above, having a business bank account helps you keep your startup’s income and expenses separate from your personal financial transactions. Not only does this save you (and your accountant) headaches and frustration in trying to separate these line items, it also makes life easier when it’s time to file your taxes.

With a separate accounting of your expenses, for example, you can better identify which business expenses you may use as tax deductions. Additionally, with a separate business account, the IRS will know that you are running a legitimate business, not just engaging in a personal hobby.

  • Keep it professional.

Similar to holding yourself out to the IRS as a legitimate business, having a bank account for your startup also holds you out to appearing more professional to your customers, vendors, and others in your industry. For example, customers will feel more confident in paying your company, not you personally, for your products or services.

What do I need to open a business bank account?

Now that we’ve explored the benefits of having a business bank account, let’s looks at what you need to open one. Before you head to the bank to open your account, first you need to secure your federal employer identification number (EIN). You’ll need this identifying number for your startup to open your bank account much like you would use your social security number to open a personal account.

Note, that if you are a sole proprietor, you may use your social security number to open a business bank account. However, even as a sole proprietor, it’s a best practice to secure a separate EIN for that sole proprietorship in addition to its own business bank account, for all of the reasons listed above.

Once you have your startup’s EIN, then you can open your business bank account, online or in-person at your local branch. Here some common documents that banks request. 

  • Your startup’s formation documents, such as your Articles of Organization if you’re a limited liability company or your Articles of Incorporation if you’re a C-corporation
  • Your startup’s business license
  • Any ownership or partnership agreements
  • Your driver’s license, passport, or other government-issued ID, birthdate, and social security number
  • Your ownership percentage of the startup. Note that for all owners with 25 percent or more ownership, personal details must be provided for each owner.
  • The mailing address and phone number for your startup
  • An opening deposit, which is dependent upon the bank you choose.

How do I open a business bank account?

Once you’ve assembled your documentation, you are ready to open a bank account for your startup. In doing so, you’ll need to decide which accounts your business needs, such as a business checking, business savings, or business money market account, or a combination of these.

Typically, you’ll use your business checking account to receive customer payments and pay bills. Often, this account reflects your working capital. With business savings accounts, you can keep a percentage of funds that you may need in the future, for example, for scaling your business. Either account can earn interest.

Additionally, if you have customer sales, you may also want to open a merchant services account, where you can accept credit and debit card payments.

Your next step is to apply for your account(s). Many banks now allow you to apply online where others may require you to visit your local branch in-person. This is something to take into consideration when choosing your bank—which we’ll address further below.

Once your account is set up, you’ll receive your account numbers and an ATM card(s) (if you so choose). Now, you’re ready to make your first deposit and start using your accounts for deposits and expenses.

Some things to keep in mind when choosing a bank

Choosing a bank is also a critical step when opening your startup’s business accounts. We thought it was so critical, that we wanted to dedicate a section to it.

When you select a bank, here are a few things to keep in mind:

  • Confirm that the bank has various account types specifically for businesses, especially small businesses as well as those that can handle your startup’s scaling
  • Determine all fees and expenses associated with the account, helping you compare accounts and compare banks. Fees will include transaction fees, maintenance fees, ATM fees, and wire transfer fees.
  • If you choose accounts that are interest-bearing, understand the interest rates for both business checking and savings accounts.
  • When it comes to ATMs and ATM fees, make sure you understand where you can use your ATM card for free and if a fee is charged, then know the amount.
  • Finally, ask questions about account management tools, such as online and mobile interfaces, bill pay, invoicing, integrations with your accounting software, and other business tools. This helps you merge your bank account with your accounting tools, such as Quickbooks, Freshbooks, or Quicken, making managing your startup’s money easier.

For your startup, having a business bank account (or two) is critical to the success of your company. When opening your accounts, be sure to use the tips in this article as your checklist, helping you to find the best bank and accounts for your stratup.

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