- You don't need to be an established LLC or corporation to open a business bank account. Sole proprietors and entrepreneurs can establish accounts that are separate from their personal banking or checking accounts.
- Talk with multiple banks, and obtain a clear understanding of the services (and fees) to find the best deal for your business.
- Once you select a bank, verify with the account manager the documentation you'll need to provide to open an account. Sole proprietors may only need to provide a tax ID or Social Security number, while corporations may need to submit more extensive documentation.
- Monitor your account activity to see if your business might benefit by changing the account type to one that offers greater benefits.
Opening a business bank account is a critical task for a new business owner. Even if you are a sole proprietor, having a business account is the best way to keep track of your finances and your business records. It also establishes a boundary between your personal and professional finances.
Using your personal account for business purposes may seem like a reasonable, short-term solution, but long term, it is best to keep your personal and business transactions separate from one another.
"It is just a good accounting practice to keep your business [finances] separate from your personal [funds], and setting up a business checking account is the first step to making this possible," said Kevin Ravenscroft, president of Timberwood Bank in Tomah, Wisconsin. "You can track your income and expenses for IRS filing purposes, more easily identify potential business deductions from the IRS, maintain clear records for potential audits, and you may be able to limit your personal liability."
Here are a few important factors to consider to help you narrow your choices on a bank.
What is the best bank for your business?
Business banking is different from consumer banking. Where you have your personal checking account may not necessarily be the right bank for your business. When deciding where to open your business account, consider the financial institutions in your area. Talk with each of them to see if they have a specialty. Some banks are small business specialists, whereas others focus on property or equipment loans.
Do you need to be an LLC or incorporated to open a business account? No. Do not let your business organization or tax filing status dictate your choices. Even if you are a sole proprietor, you can open a separate account for your business finances. Banks offer several different types of accounts, and even if your best option is to open another personal checking or savings account to keep transactions separate, it is still a business account to you.
Today's business banking customers may be able to take advantage of lines of credit and cash management services in addition to opening a checking account. This is another reason why it's important to talk with representatives from multiple banks. They may have recommendations that make a big difference for your business. However, some bankers might encourage you to use their products and services – even if you don't need them – just to make more money. Do your research and ask questions so you understand what you're signing up for.
What fees does the bank charge?
Many banks offer business checking accounts for free – there may be some conditions with these accounts, such as a minimum balance requirement and a limited number of transactions.
At JPMorgan Chase & Co., for example, business owners with revenues of up to $10 million can open an account for $25. At First National Bank of Omaha, business owners can take advantage of a Business First Free Checking account that requires a $100 minimum opening balance but has no minimum balance requirement.
As your business grows, you may need to change the type of account your business has. Enhanced accounts might charge a fee, but you may find the benefits offset the cost. David Ely, professor of finance at San Diego State University, cautioned business owners, though, to consider total costs.
"You're not just looking at the terms of the deposit accounts, but also look at it in terms of fees," Ely said. "Consider the cost of the full relationship."
What documentation will you need to provide to open an account?
Documentation requirements for a business bank account vary depending on the type of business you have. Sole proprietors are considered more like a consumer, so required documents should be minimal: A tax ID and Social Security number are generally all you need. Corporations need to provide more documentation, including articles of incorporation and a certificate of good standing with the state.
If you are using a name other than your own, such as a "doing business as" (DBA) name, you need to register that name with the state and provide the form to the bank. You may also need to provide proof of address, usually a bill received at your address or some state communication addressed to your company.
Because of the documentation requirements, you'll need to open your account in person. The bank will need to review your documentation, and you will need to sign some documents. You can streamline the process by checking with the bank ahead of your visit to find out what specific documents they'll need from you.
If you are still unsure or nervous about opening a business bank account, the Small Business Association offers tutorials, classes and guides. You can also check out these recommendations from Consumers Advocate.
Another helpful resource is talking with a financial professional in your area. Their specialized knowledge of financial matters, combined with their knowledge of your geographic region, including the business community, can pay big dividends in your decision.