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You’ll hit plenty of milestones when you start your own business. Some are a bit more exciting than others, such as picking out a logo, getting your first client, or making your first million dollars. The business finance milestones that you need to meet might be a little less exciting for a founder. For example, you’ll need to figure out what you need to open a business bank account.
This might seem far from the most glamorous tasks that business owners need to tackle, but opening a business bank account is essential to your business’s success. Having a business bank account makes you look professional to your clients, keeps your business and personal funds separate, and can help you qualify for financing when the time comes.
As you might have expected, the requirements to open a business bank account can vary based on the type of business you have, the type of bank account you want to open, and which bank you use.
Let’s see some of the common things you’ll need to open a business bank account, along with tips the best bank accounts for small businesses.
One of the biggest reasons to have a business bank account is to keep your business and personal finances separate. Mixing the two can make it harder to do your taxes and maintain your books. You could also open yourself to more legal exposure if you mix business and personal funds.
If you run a corporation or limited liability company (LLC) without separating out your financials, you could potentially lose the personal liability protections you would have as an individual in case your business runs into any trouble. That means creditors could come after your personal assets if your business acquires a debt.
There are other reasons it’s good practice to open a separate business bank account. A business checking account makes you look more professional in front of clients. You’ll get custom checks with your business’s name on them, a dedicated company debit card, and you’ll also make your accountant’s life so much easier for tax time.
Opening a business bank account is also one step to establishing business credit for your company, something that can help you qualify for financing and positive supplier terms down the line. The benefits you get when you open a business bank account far outweigh the headaches—get it over with early, and you’ll be happy you did!
Now that you know the benefits of opening a business bank account, it’s time to decide what type of checking account you need. There are three main types of business bank accounts:
Think about how you use your own personal accounts. You use checking for day-to-day expenses, and to accept payments from friends and others. You use savings to store your leftover cash, and accrue a little interest on money you don’t necessarily need to access quickly.
Business bank accounts work the same way. It’s likely you’ll need a business checking account first, which’ll allow you to do the basics—pay for things, collect invoices, and manage your cash flow.
Then, once you’re established and have more money in your checking account than you conceivably need to access within a month, consider adding on a business savings account to build interest and squirrel away any surplus money you’ve got. This is a place to stash away money for the long-term, getting a bit of interest from the bank all the while.
If your business accepts credit card payments, you’ll also need a merchant account. Merchant account providers front you payment for your sales before the customer pays their credit card company. You need to have a business checking account before you can open a merchant account.
That way, the merchant account provider has somewhere to deposit your funds. Some traditional banks offer merchant services accounts. You can also go with different banks for different types of accounts.
Whether you’re looking to open a business checking, business savings, or merchant services account, all banks will ask you for certain kinds of documentation about the business and its owners.
Some of these documents may vary depending on your type of business entity and what state you live in (or the state in which you established your business). Some banks also ask for more documentation than others. It’s typically simpler to open a business bank account online.
Here’s what you need to open a business bank account:
To prove your business’s identity, you’ll need to provide your EIN, as well as the documents that the IRS sent you when issuing your EIN. Some banks allow sole proprietors to use their social security number in lieu of an EIN, but there are several benefits to getting an EIN even if it’s not required.
It’s fast and simple to apply for an EIN for your business on the IRS’s website. It lets your business have a tax presence independent of your personal social security number.
To obtain an EIN, you must have a valid Social Security number, and be filing on behalf of a company located in the United States. If that’s in order, you can request an EIN online in about a half hour. Be sure to save your EIN confirmation letter, which you’ll need to show to the bank.
Most banks will also ask you for one or two forms of personal identification, to prove that you are actually connected with the business. In order to open a business bank account, you must be an officer or owner of the business. Valid forms of personal identification include a driver’s license, state-issued identification, or passport.
A business license is exactly what you’d expect it to be—a license from a state or local government body that allows you to conduct business. Each state’s or locality’s processes for getting a business license differs a bit, so it’s best to see what your area requires specifically.
Many businesses operate under a trade name that is different from their legal name. For example, ABC Bakery, LLC might operate as “ABC’s.” If this is true in your case, you’ll need to file a fictitious business name, also known as a doing business as name (DBA), with your state’s secretary of state. The bank will ask for a copy of your DBA filing documents as proof of your business’s trade name.
Businesses with multiple owners should their partnership agreement, also called a founders’ agreement. For corporations, this might be called bylaws, and for LLCs, it might be called an operating agreement. The agreement covers key issues the company will face, each owner’s rights and responsibilities, and how it will conduct business. If you don’t have a partnership agreement, head over to Rocket Lawyer to create one.
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The requirements for organizing documents vary a bit by state, but at their core, they spell out a few crucial components of your company: business name, address, owners, registered agent (the person who handles a company’s paperwork), management structure (who will be in charge of running the company), and the activities it will engage in. The main organizational document for a corporation is called the articles of incorporation. For an LLC, it’s called the articles of organization. You should store these founding documents in a safe place and be ready to show them to a bank.
This final piece of information is for businesses that are applying for merchant services accounts. If you own a merchant account, you will need to tell them your processing history and average volume of monthly credit card revenue. If you’re a startup, then you might not have any processing history, but will need to provide estimates of your monthly credit card volume.
Some merchant account providers ask for additional documentation as well, such as financial statements and bank account statements.
Here’s a basic overview of what you’ll need to open a business bank account:
Okay, if you’ve made it this far, which means you have everything prepared to open your business bank account. From here, the next step is to choose the right business bank account for your company. Here are some good options for small businesses.
Who it’s right for: Businesses that don’t handle much cash and want a digital, completely fee-free bank account.
Who it’s right for: New businesses that are ready to grow while easily managing their cash flow.
Who it’s right for: Bigger companies that need the essentials.
Who it’s right for: Businesses that want an interest-bearing savings account
As tricky as it might seem to open a business bank account for your company, it’s the kind of pain that you really only have to endure once. Fulfill all of your state’s registration requirements, and have all of your state and federal paperwork ready to go. You should also know what your company’s needs are, like whether you need the liquidity of a checking account versus the interest rate of a savings account.
The paperwork required to get your company set up with a bank account isn’t minimal, no question, but most of it will have already been done when you set up your business. And the other documents that haven’t been filed yet will still come in handy later on—whether it be at tax time or when your business grows. Once you open your business bank account, you can focus on generating sales and filling that account with cash.