What You Need to Know About Small Business Banking

Business Accounts and Personal Bank Accounts

If you own a small business or intend to start one, you will obviously need a small business bank account. Many entrepreneurs and self-employed individuals make the mistake of combining their personal funds and accounts with their business funds. While you might be saving yourself some extra bank fees, in the long run this can lead to more trouble than its worth, and personal funds can quickly be depleted as they are used for business purposes if there is no set budget constraint.

Additionally, it will be more difficult to prepare your taxes each year, as it will be harder for both you and the government to differentiate between business and personal expenditures originating in the same account. Many transactions may be called into question if they are not easily identifiable as a business transaction. Calculating income tax and business expenses will be especially time-consuming, and the potential for mistakes is great.

Keeping your business and personal accounts separate also provides the government with a clear audit trail. While it isn't necessarily required of you to maintain separate accounts, it is certainly recommended in order to improve accuracy and establish a more complete record of business transactions, income and expenses.

One more reason to maintain a separate business account is simple professionalism. Checks with a business name rather than those from your personal checkbook present the image of a more professional business venture.

Choosing a Small Business Bank Account

Choosing a bank account for your small business may require a bit of research. Depending upon the type of business you run, some bank accounts may definitely be more ideal than others, and you'll certainly want to be aware of the benefits, cons, and banking fees related to each particular account.

You'll want to think about long-term prospects as well. As your business grows, will the bank account you initially choose still be viable, or will you need to make a transition to a new account? How easy will it be to change accounts? Typically, interest rates are higher for accounts that hold more funds. You may not be starting with a large amount, but being aware of the scale of interest rates will help you better plan and choose your which small business bank account will offer you the most gains in the future as your business and your funds grow.

At the same time, examine the fees, charges, and penalties related to each bank account. Some may be normal, such as overdraft fees or penalty fees withdrawn if your account goes below a minimum amount. Others may seem excessive, such as a fee charged to talk to a teller, or monthly maintenance fees. Some fees may be tax deductible, but it is to your benefit to find a small business bank account with a minim of fees and restrictions.

You'll also want to ensure that the bank you choose is certified by the Small Business Administration. Should you require a loan in the future, having an established account with an approved SBA lender will facilitate the process.

Opening Your Small Business Bank Account

Once you've decided upon a particular bank and a small business bank account, you must go through the process of opening it. Contact the bank and ask them what type of documentation will be required. The forms may be different for each type of business: sole proprietorship, LLCs, partnerships, non-profits, etc. Typically, you'll be required to have a tax ID number, your business name filing paperwork, photo ID, and signatory information.

Thoroughly check the paperwork for errors before leaving the bank, as it may be harder to make any changes once the account is already established.

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