No matter what business you’re in, it’s always a good idea to have a business bank account separate from your personal account. This allows you to keep your personal and business finances completely disassociated, so that there’s no confusion come tax time or accidental mingling of expenses. And of course, there’s also the added security benefit that comes with having your company finances isolated; should your business close, your personal assets are protected, as they have no association with your company’s funds.

You may be wondering where to start in opening a business bank account, or what makes it unique from a personal bank account. Here we’ll go over some of these points so that you feel totally equipped when it comes time to open your own account. Let’s dive in!

Differences Between and Business Bank Accounts

Overall, personal and business bank accounts have similar features and functions. You’ll be issued checks and a debit card to make payments, you can set up automatic payments to your vendors, and you can typically access your account online for convenience. However, there are also a few key differences.

First, when tax season rolls around and every deduction counts, having a business checking account may gain you a few more deductions than if you were working out of your personal account. Having a business account shows the IRS that you really are a legitimate operation and thus deserve all the tax benefits of being such.

Secondly, obtaining a business account is a bit more complicated than opening up a personal checking account. When you sign up for a personal account, all you really need is a personal identification and proof of address (usually in the form of a utility bill or similar piece of mail). However, there are a few more hoops to jump through in order to open a business account. You have to actually prove you’re a business by showing your business registration and any related documents.

Lastly, personal and business checking accounts are significantly different in terms of fees and regulations. For instance, most business checking accounts have minimum balances that you need to maintain to avoid incurring fees, while this is not a typical feature of  personal accounts. Additionally, you can expect fees associated with large cash deposits.

Why Open a Business Checking Account?

In case you’re still not convinced that you truly need a business checking account, here are 3 important reasons to consider.

1. Separate Entity

There are many benefits to open a business checking account, as you’ll see here. But the first and perhaps most important of all is that it keeps your personal finances separate from business expenses. This not only protects you from any attack against your assets but it can also give your brand more credibility whenever you deal with clients. Your business simply won’t seem as legitimate if you give
your personal bank account for payments and deposits.

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2. Easier Account Processing

When you separate your personal and business assets, the accounting department (or you, if you take care of your own budgeting) will have a much easier time crunching the numbers. Sometimes it’s difficult to distinguish exactly what is a business expense and what is a personal one, so keeping finances separate bypasses this problem entirely. In order to create clean, organized bank statements for your business, just move your company assets into their own account and do business from there.

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3. More Tax Deductions

If you declare your personal account as your business account, you may be denied some tax deductions. Personal accounts are not given as high priority as business accounts when it comes to taxation, and again, it’s harder to establish that you really are a business if all your funds are in a personal account. A business checking account shows the IRS clearly that you are a business and need all the tax deductions that go along with your status.

Deductions

Requirements for Opening a Business Bank Account

If you’re finally ready to make the big switch, you’ll want to know what exactly you need in order to open a business bank account. Here are the general requirements so that you can be prepared when you head into your bank.

 

  1. Bank Application

As with any other financial service, you’ll be required to fill out an application for your business checking account. This will most likely be general information about your business (i.e. name, address, etc). Every bank’s application will be different, but it typically isn’t terribly long and your bank may even offer the option of filling it out online to make it even simpler.

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2. Business License

The next thing you’ll need to show your bank is your business license or business permit. This shows that your business actually exists and that you are already registered with the appropriate government body. A bank will not open a business account for an entity that is not clearly a business!

If you don’t yet have a business license, then now is the time to think about acquiring one. You’ll need one in order for your company to function legally, so be sure to apply before you think about doing anything else with your business.

3. Tax ID

Next on your documentation list, you’ll need to show your tax ID (also known as your employee identification number, or EIN) so that the taxation bureau can collect taxes from your business. This is another one of those legal requirements that is an absolute must. If you’re a sole proprietorship then your social security number is technically your EIN. If you’re not a sole proprietor and don’t have an EIN to show to the bank, you need to apply for one first.

 

4. Certification of Incorporation or Partnership Agreement

For corporations, you’ll need to show your certificate of incorporation so that you can prove your registration with the Securities and Exchange Commission. If you run a partnership, then you have to show your partnership agreement to the bank. You will also be listing down the names of all your partners or incorporators as to make sure that the bank knows who represents and owns the company.

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5. Articles of Incorporation (For Corporations Only)

Lastly, you’ll also need to present your articles of incorporation. The articles of incorporation are only for corporations though so if you have a partnership or sole proprietor business, you don’t need this. Basically, these are the laws that you and your partners will be following while running the business. The bank will need this for background checking purposes.

These are the basic requirements that you will need to open up a business bank account, though you’ll want to double check with your bank of choice just to be sure they don’t ask for anything more.

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Options for Business Bank Accounts

Speaking of banks, when you’re on your business account hunt you want to choose the bank that can best meet all of your needs. So what options for business checking accounts are out there? Here are a few picks that have good rapport with businesses and offer plenty of benefits.

Separate Entity

  1. Bank of America

We briefly touched on those fees that tend to be associated with business bank accounts. When you’re deciding on who to go with for your business checking account, fee comparison will certainly factor in. Bank of America is a great pick for a small business account, as it has the lowest fees and also has the lowest necessary minimum balance (in other words, that balance that you need to maintain to avoid fees is lower than that required by most other banks).

  1. Citibank

Citibank also has lower balance requirements similar to Bank of America, but they are also less accessible as they have fewer U.S. branches. They offer 250 free monthly transactions, which beats out Bank of America’s 200 free transactions.

  1. Wells Fargo

Of all the banks on our list, Wells Fargo has by far the most branches, which means that making your daily deposits should be a cinch. One downside, however, is that their minimum balance requirements are quite a bit higher than those of Citibank and Bank of America.

All of these banks have an online interface where you can do most of your banking conveniently, and they even have mobile apps so you can keep tabs on the go. This makes it incredibly easy to check on your finances even when you’re not in your office so that you’re always on track with your money.

Final Thoughts

Though we’ve gone over quite a bit of information, there are a lot of small business banking aspects that may vary from bank to bank and from state to state. Take some time to put in your due diligence on which bank is the best for you, as business checking accounts are not a one-size-fits-all. What works for someone else’s business may not be ideal for your company, and vice versa.

The main point to remember is not to get overwhelmed by the process of researching and setting up your business checking account. Once you’ve selected a bank, talk to one of their representatives to help you sort through the setup process. They can equip you with everything you need to know about the account in question, what you need in order to apply, and how to maintain the account easily and safely. Though it may seem complicated, once you have your business checking account in place, your bookkeeping and accounting will be a much simpler process and you can relax knowing that your business is in good hands.

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Written by Kristian Rivera
Kristian Rivera is a digital marketing specialist at Fit Small Business, a rapidly growing website for small businesses. When not helping other small business owners, Kristian manages a startup where he utilizes his experience in product management, digital marketing, analytics and business development.

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