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Why Do I Need a Business Bank Account? Plus, How to Get One

7-minute read

Emily Thompson

Emily Thompson

28 July 2020

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Still depositing hard-earned cash in your personal checking account? It may be time to “up your professional game” and get a business bank account.

A small business bank account can potentially help you better manage your finances. It creates one place to track expenses and helps you keep your financial records organized at tax time. Plus, a small business bank account typically appears more professional to clients and vendors.

Sure, it may take a day or two to set up a new bank account, but it’s well worth the effort. Here are a few ways I’ve found a business bank account helps me in my day-to-day work.

The 5 Biggest Benefits to Opening a Business Bank Account

1. Your small business bank account can help you stay organized.

As a professional writer, it’s natural for me to be creative. But the truth is, owning a business also requires organization and focus — two skills I have to work hard at.

A couple of years ago, I opened a business checking account to help track my payments and expenses, which were getting hairy. I had been relying on my personal checking account, which resulted in mixed records at tax time. Talk about a mess!

Keeping my business transactions separate has helped me in many ways. I can see how much I’ve earned and how much I’ve spent on business-related items (software, phone charges, supplies, a website, etc).

Plus, I purchased accounting software, which automatically connects my business bank account. This way I can see a dashboard of my revenue and spending, and make necessary adjustments.

Another perk? I pay myself biweekly so that I don’t overspend my business income. It feels good to get that personal deposit, even if I’m just moving money from my small business bank account to my personal one.

2. It can potentially help you maximize deductions.

For me, the best thing about opening a business account was getting a debit or credit card. Once you have a card, you can use it to pay for everything related to your work.

Before getting a card, I forgot to record many expenses, from parking fees to lunches. I wasted money using my personal checking account and lost out on some tax benefits. Using your business debit or credit card gives you a record of your expenses in one place, so you can get a bigger deduction at tax time.

3. You have better protection against an audit.

Audits are fairly common, especially for small businesses. If the IRS contacts you with business-related questions, you need to have your records in order. A business account can provide a trail of your income and expenses.

Trust me, when Uncle Sam comes knocking, you’ll want to whip up information quickly.

Plus, if you’ve just started your business and you’re not earning much, you need to prove to the IRS your work isn’t a hobby. Even though you’re putting blood, sweat, and tears into your venture, at times it can be hard to prove its legitimacy.

Opening a business account can help. It’s an important step that shows the IRS you’re a business owner (and not just a hobbyist).

4. You can share the administrative workload.

Have employees? With a business bank account, you can give trustworthy employees access to make deposits, pay expenses, and more. For obvious reasons, you can’t do the same with a personal checking account.

Opening a business account can allow you to share the workload with a bookkeeper or another employee. This helps you focus on your product and other aspects of your business, rather than on administrative duties.

5. A business bank account makes you appear more professional.

If you own a retail store, a business account is a must-have. That’s because you need a point-of-sale system to allow customers to pay. To open one of these software systems, it’s best to have a business bank account first.

Are you in a service-based industry? If you use a personal account, customers can’t write checks to your business name — only to your personal name. Also, vendors can tell if you use a personal check. Plain and simple — having a business account can make you appear more professional.

Before I opened my business account, several clients wrote checks out to my business’s name. Unfortunately, I couldn’t deposit them. It was mortifying — and also the moment I decided to open an account solely for my business.

What Should I Look for in a Small Business Bank Account?

Convinced yet? If you’re ready to open an account for your business now, that’s great. But you should shop around first. Not all small business accounts are created equal. Look for banks that will give you:

  • Promotions for opening an account. Don’t miss out on marketing perks and benefits. You may get a cash bonus or higher interest rate for keeping a balance in the account.

  • Higher interest rates for checking and savings accounts. Read the paperwork carefully, especially if you open an account with a high interest rate. Find out how long the promotional rate lasts, and then compare the long-term rates at different banks. If you open a savings or checking account, you’ll want the account that earns the most.

  • Low interest rates for credit lines. If you use a business credit card, find a bank that offers a low interest rate. Even though it’s ideal to pay off your card every month, you never know when you might need credit. You don’t want a high interest rate to burn you.

  • A low minimum account balance. Does the bank require you to keep a large sum of money in your account? If so, look elsewhere. You want an account that offers flexibility in case you have a financial setback.

  • No unexpected fees. Most banks have fees, but they should disclose them upfront. As you investigate banks, ask about fees for transactions or to close the account. You should avoid banks with too many extra fees, especially if they come as a surprise.

  • Excellent customer service. Look for a bank that looks out for you. You want a customer service professional to be available right away if there’s a suspicious transaction, a lost card, or you have another emergency. You also need a business bank account with a place that advocates for you by offering solutions to help you save money and grow your business.

What Do I Need to Open a Small Business Bank Account?

Opening a small business bank account is a smart decision. But to do so, you likely need to be prepared with the right paperwork and records. What you need will vary based on the type of business you own. Here is a list of items you may want to consider bringing to the bank, based on your business type.

Sole proprietors:

  • A Social Security card or employer identification number (EIN)
  • A registered DBA (doing business as)
  • Personal identification
  • A license to do business (if needed)
  • Credit card revenue (merchant accounts)

Partnerships:

  • Employer identification number (EIN)
  • Personal identification
  • A license to do business (if needed)
  • A registered DBA (doing business as)
  • Partnership agreement
  • Organizing document
  • Credit card revenue (merchant accounts)
  • Documents outlining your business structure

Limited liability companies:

  • Employer identification number (EIN)
  • Personal identification
  • A license to do business (if needed)
  • A registered DBA (doing business as)
  • LLC operating agreement
  • Articles of organization
  • Credit card revenue (merchant accounts)

Corporations:

  • Employer identification number (EIN)
  • Personal identification
  • A license to do business (if needed)
  • A registered DBA (doing business as)
  • Corporate bylaws
  • Articles of incorporation
  • Credit card revenue (merchant accounts)

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A Brief Overview on These Small Business Bank Account Documents

If you’re not sure what these documents and records are, here’s a brief overview. You also can read about them in our checklist of what to take to the bank.

Your social security card or employer identification number (EIN).

You’re probably familiar with your SSN, which is used to identify you. Even if you know your SSN by heart, you will need to show your Social Security card.

An EIN is another number you can apply for , which serves a similar purpose to identify your business.

A registered DBA (doing business as) in the city or town where you work.

If you’re a sole proprietor, your DBA may be your full name. But if you gave your business another name, you need to complete paperwork with your local government. This will officially register your business name.

Personal identification.

You can use a copy of a recent passport or a driver’s license as personal identification.

A license to do business (if needed).

In some states, you may need a license before starting to work. Although licenses aren’t required everywhere, it’s a good idea to bring yours to the bank if you have one. Depending on your trade, it may be a requirement for opening an account.

Credit card revenue (merchant accounts).

If you want to accept credit or debit card payments, you need a merchant account. The bank will likely ask for your credit card revenue history, or at least an estimate of the volume you expect.

Partnership agreement, LLC operating agreement, or corporate bylaws.

These are documents that outline how the business will operate. If your business has multiple owners, you’ll want to bring your partnership agreement (for partnerships), LLC operating agreement (for LLCs), or corporate bylaws (for corporations).

Organizing documents (LLCs or corporations).

These are documents that outline your business’s name, structure, and other key elements. Typically they are filed with the state. If you own an LLC, they’re called “articles of organization,” and if you own a corporation, they’re called “articles of incorporation.”

Cut Through the Noise with Our Business Bank Account Checklist

At first glance, opening a business bank account may seem like a lot of work. But it’s actually not. In fact, I gathered and completed the paperwork in just one day! That morning, I visited the town clerk to register for a DBA, and in the afternoon, I opened my bank account.

It was well worth the effort. Today my records are better organized, I’ve saved money on taxes, and best of all, I have a more professional appearance to customers. Take the time to get yours. Download our free checklist for opening a business bank account.

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Emily Thompson

Written by

Emily Thompson

I earned a B.A. in Journalism from the University of Wisconsin at Madison (go Bucky). After realizing my first job might involve carrying a police scanner at 2 am in pursuit of “newsworthy” crimes, I decided I was better suited for freelance blogging and marketing writing. Since 2010, I’ve owned my freelance writing business, EST Creative. When I’m not penning, doodling ideas, or chatting with clients, you’ll find me hiking with my husband, baby boy, and 2 mischievous mutts.

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