If you're ready to get serious about your small business, you'll want to open a business bank account to manage your finances. However, with so many options available to business customers, it can be confusing to set up a new account. Small business experts shared some of the common mistakes business newbies make with their commercial accounts, and how you can avoid doing the same when opening your own.
1. Incorrect or missing information at account setup
New small business owners and entrepreneurs frequently make the mistake of bringing the wrong paperwork to the account-opening appointment. Each bank or credit union may have different requirements, so when you book the appointment, ask the banking officer exactly what you'll need to bring to the meeting.
"Don't worry about assembling a great deal of business documents," said David Bakke, small business specialist at personal finance website Money Crashers. "In most cases, all you need is your social number, a tax ID and other general information." [How to Open a Business Bank Account]
Small business owners also frequently make the mistake of using the wrong tax ID to open the account, said Michael Rozbruch, founder of Michael Rozbruch's Tax & Business Solutions Academy.
"They open it under their social security number, when they should open it up under their Federal Employer Identification Number," he said.
2. Not having a designated business account
Thinking about running your new business from your existing personal checking or savings account? This could be a big mistake, because it's difficult to track business finances when they're combined with household finances.
Depending on the size of your business, it may be wise to open individual, separate accounts for revenue, collected sales tax, estimated income tax and payroll. Doing so will keep your business finances organized and make life easier at tax time.
"You'll be a lot better off by segregating your revenues and expenses from your personal finances," Bakke said.
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3. Not planning check-signing authorities
Rozbruch noted that small business owners often forget about planning for business check signing.
"They don't set up the check-signing tasks with checks and balances in mind," he said.
If your business includes a partner or staff members, will your business checks require one signature or two? If the business checks require two signatures, will this be for all check amounts, or only amounts over a specified dollar value? Make these decisions before opening a small business bank account, and you'll avoid the headaches of trying to make changes later.
4. Choosing the wrong bank for your business
Opening a business account at the neighborhood bank or the one you know best may not be the best idea if that bank doesn't offer services crucial to your business.
"Before choosing an option for your business banking account, get an assessment of what you need out of your business banking relationship," said Elle Kaplan, CEO and founding partner of capital management firm LexION Capital Management.
If you're dealing with a credit union, Kaplan said the first question to ask is if they offer a business checking account, a feature that isn't available through all credit unions. Another option is to start by checking out the business banking services offered as part of a group or organization you belong to.
"If you belong to an affinity group with access to business checking through specialized credit unions, like those for veterans, former teachers, writers or performers, then that could be a great option," Kaplan said.
5. Ordering the wrong checks
In a surprisingly common error, new small businesses often print the wrong company name on checks, said Rozbruch. For example, they might use a "doing business as" (DBA) nameinstead of the entity's legal name. In some scenarios, using a DBA name on checks poses a problem, especially if the business accepts credit card payments online. This is because of the increase in online banking fraud.
"Credit card merchant processors such as Powerpay require that the entity's legal name match that on a void check to ensure they are one and the same, especially for startups," Rozbruch said.
New entrepreneurs should also ask if the account package includes electronic check printing that's compatible with the business' accounting software. Rozbruch noted that some banks allow you to order checks that can be electronically printed, via programs like QuickBooks.
6. Not maintaining the minimum monthly balance
Some business bank accounts offer monthly fee waivers if the account balance stays above a stated minimum every day of the month. Don't make the mistake of paying unnecessary bank fees by letting your balance fall below the minimum. Better yet, set a goal to keep slightly more than the minimum required in your account.
"I recommend keeping the minimum amount plus a few hundred in your account," Kaplan said. "That way, you won't find yourself in the position of helping the bank earn money at the expense of your business."
Originally published on Business News Daily.