As of 2021 firms with fewer than 20 employees make up 89% of all businesses in the US. With so many eschewing traditional employments and pursuing their own path, or finding supplementary income from alternative business ventures, keeping track of your finances is crucial.
If your business is a corporation then a separate bank account is a legal necessity. But even if you’re a sole proprietor, LLC or freelancer, separating your business and personal finances can save a lot of hassle, especially when it’s time to file your taxes. And the sooner you open a business account, the sooner you can start building a credit rating for your business.
You might find the terms and conditions of your personal account do not allow it to be used as a business account. If your type of business makes a lot of cash transactions, your bank may insist you open a bank account.
Here are 7 factors to consider when opening a business bank account:
1. How It’s Done
The process is very simple if you’re a sole trader or a freelancer and not dissimilar from opening your personal account. You’ll need photo I.D. and an accepted proof of address. If you operate a registered company, you’ll need all of the above plus your company registration information and possibly tax and Sales Tax registration details
2. Business Account Fees
Most personal accounts are free whereas there is often a monthly fee attached to business accounts. These can be small (around 5 US dollars), a low percentage of all cash deposited or fees on cash withdrawals and transfers. Shop around and find an account that marries well with your type of business.
3. Fraud Protection
If your business makes transactions with checks, you may be surprised to learn that most banks do not insure against forged, counterfeit or fraudulently altered checks. In the US approximately 1.2 million bad checks are processed daily. One way to protect yourself against these attacks is to use voucher checks. These three-part documents incorporate the check and a voucher each for the recipient and the bearer. It allows for details of the transaction to be recorded (like an invoice) and makes bookkeeping easier. Tamper-resistant varieties are also available.
4. Type of Account
Business checking accounts are accounts that are most comparable to your personal account. A business savings account, however, offers the additional service of a savings portion in which you can accrue interest—a good option if your business deals heavily in liquid assets. Finally, a cash management account (CMA) combines features of investment, savings and checking accounts in one package.
5. Accounting Assistance
If you manage your own accounts, many business accounts include access to accounting software that can help organize payments and purchases. Some use a system where you can upload photos of receipts and link them to entries in your expenses.
6. Keep Your Taxes Separate
If you’re paid a pre-tax figure for work, a good practice is to immediately deduct the tax that will eventually be payable and keep it in a separate account. This way there are no nasty surprises when it comes to paying your taxes. Some business accounts allow separate purses to be used so you can keep them separate within the same account.
7. Additional Account Holders
If you’re in a partnership of two or more people, it makes even more sense to separate the finances of the business. Verify the process of allowing access of other people to the account and the rights and liabilities of those involved.
A business account is a great way to level-up your business. Your clients can make payments to your business and not to you personally which adds professionalism to the transaction and improves your business image.
Internet banking options have brought a wealth of choice to small business owners. Now might be the time to consider opening a separate account for your burgeoning business.