You've taken the leap to become an entrepreneur! While being your own boss has its perks, it also comes with a lot of duties. Setting a strong foundation from the start can help streamline the management of these responsibilities.
Making the right choices regarding your business finances is crucial. Familiarizing yourself with business-specific bank accounts is essential. Understanding the benefits of these accounts can greatly impact the success of your venture.
Before you start accepting or spending money as your business, you should open a business bank account, for many reasons.
Protect yourself - A business banking account makes it easier to provide accurate financial statements for tax purposes and ensures you are properly separating personal and business income and expenses.
Look Professional - Shows potential clients, suppliers and partners that you are serious about your business. Builds credibility, which can attract more clients.
Emergency Backup Funds - Most business banking accounts offer lines of credit, which could come in handy in emergencies.
Build Credit - A business credit card will help your business make start up purchases and establish a credit history for your business.
Simplify - Keeping your personal and business finances separate will aid in tax preparation.
Here's what you need to know about business bank accounts, how to choose the right one, and how to open one.
Business bank accounts are essential for your business's financial operations, for functions such as paying employees and vendors, handling expenses, receiving sales revenue and other funds, paying taxes, ordering supplies and managing business loans and credit cards.
Types of Business Bank Accounts
There are many types of business bank accounts, but the main ones are:
Business Checking Account: A business checking account would be used for daily operations and essential tasks
Business Savings Account: Helps build an emergency fund, save for your quarterly taxes, earn interest, and set aside money for future goals.
Business Money Market Account: Typically offer higher interest rates compared to savings accounts, but typically require a higher minimum balance.
Does my business need both a business bank account and a merchant services account?
Merchant Services Accounts - A merchant services account, like Clover, processes electronic card payments and holds funds temporarily, whereas a business bank account handles a wide range of financial tasks. A merchant services account simplifies your operations with an all-in-one payment processing system to meet the needs of restaurants, retailers and services businesses.
Business bank accounts are available at most banks, while merchant accounts can be accessed through payment processors which provide an umbrella merchant services account.
Alternatives - A convenient alternative to merchant services for small businesses is Autobooks. Autobooks allows you to create invoices and get paid directly into your business checking account.
There are also payment facilitator services that provide credit card payment processing, such as PayPal or Square, that don’t entail the need for a separate merchant account, but the disadvantages are higher transaction fees, longer funding times and limited customer service.
You should consider the following factors when deciding on your business bank:
Scope of Services: Does the bank offer products and services which will allow your business to run efficiently and grow, such as payment processing, fraud control, online technology, business software integration and succession planning.
Interest Rates: Compare rates on checking and savings accounts to ensure your money grows.
Service Fees: Look for required minimum balances, wire transfer, maintenance, ATM, and overdraft fees.
Branch Locations: Proximity is important if you handle cash transactions on a regular basis.
ATM Access: Check the size of the ATM network and potential out-of-network fees.
Transaction Limits: Be aware of limits on deposits, withdrawals, and transfers.
Each bank will have their own requirements but most likely you’ll need:
Opening a business bank account is an important step in starting and running a successful business. It helps you stay organized, compliant, and professional, and gives you access to the financial tools and services you need to succeed. So, make sure to research different business banking options and choose the account that best fits your needs and goals.
By starting off on the right foot, you’ll spend more time growing your business and less time trying to separate your finances. Talk with your local business banker today to find out which types of accounts make sense for your new business.