Opening a business bank account is necessary for all small business owners. You want your finances to be organized and protected, but this is not as simple as it might seem. To help you avoid preventable issues, small business experts shared common mistakes business newbies make with their commercial accounts.
1. Opening an account online
While it might be more convenient to set up your checking account and/or savings account online, you're better off doing your banking in person to avoid miscommunications or issues that might arise.
"The rationale was that if you go in and make a connection with someone, they will be there for you if you need a business loan or other help from the bank," said Andrew S. Ricci, principal of Riccon Strategic Communications. "Having that connection has been important. While I haven't needed a loan or access to an extraordinary amount of credit yet, when I go in to deposit checks and I see my contact there, he always asks how I am doing and shakes my hand."
2. Incorrect or missing information at account setup
New small business owners and entrepreneurs frequently bring the wrong paperwork to the account-opening appointment. Each bank or credit union may have different requirements, so when booking the appointment, ask the banking officer exactly what you'll need to bring to the meeting.
"When opening a business bank account, you often need your tax ID (EIN)/federal tax number," said Deborah Sweeney, CEO of MyCorporation.com. "This is the ID that correlates with your business, similar to how a Social Security number correlates with you as an individual. If you have a business, you likely have a DBA (Doing Business As) business license or corporate structure. Each of these business types or structures needs to have an EIN associated with it to open a bank account. Make sure you have both the business documents and tax ID with you when you open a new account." [Read related article: How to Open a Business Bank Account]
Small business owners also frequently make the mistake of opening their account using their Social Security number instead of their federal employer identification number, said Michael Rozbruch, founder of Michael Rozbruch's Tax & Business Solutions Academy.
3. Choosing the wrong bank for your business
Don't automatically choose your personal bank for your business account. While it might not seem like a bad idea, you might be limiting yourself to a bank that doesn't meet your business's needs.
"Although your personal bank might be the proper place to open a business account as well, that is not always the case," said McCall Robison, content marketing strategist and chief editor of a business blog for BestCompany.com. "Out of convenience, people will make the decision to choose their personal bank for their business banking needs without doing the proper research.
Robison advised researching several banks and choosing one that will evolve along with your business.
"You don't want to grow immensely just to be pushed back by a bank's limitations," she said. "Ensure there is room for growth within your business bank account."
Additionally, many don't realize that there are free banking service options that don't charge monthly maintenance fees. For example, Robison noted, some banks will waive monthly fees if your account balance is consistently above the minimum amount required.
If you're dealing with a credit union, the first question to ask is if they offer a business checking account, a feature that isn't available through all credit unions, said Elle Kaplan, CEO and founding partner of capital management firm LexION Capital Management. Another option is to check the business banking services offered as part of any groups or organizations 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. [Looking for accounting software? Check out our best picks.]
4. Ordering the wrong checks
A surprisingly common error, said Rozbruch, is that many new small businesses print the wrong company name on checks. For example, they might use a "doing business as" (DBA) name instead 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 check with their bank to see if the account package includes electronic check printing that's compatible with the business's accounting software. Rozbruch noted that some banks allow you to order checks that can be electronically printed via such programs as QuickBooks.
5. 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 pay 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."
Additional reporting by Sarita Harbour.