It’s no news that a business bank account can surely be a useful tool for business owners. However getting started can leave you wondering, “what exactly do I need to open a business bank account?”
Take note that the account will be opened quickly, but you will need to have a few supporting documents on hand. Also, you’ll want to confirm that you are approaching it correctly. Let’s examine if you require a business bank account in more detail, as well as its advantages, the paperwork required to get one, and how to get started.
Do I really need a business bank account?
Most definitely it is crucial to have separate financials for your business, regardless of whether you are just starting out with your side hustle or are an experienced business owner. Separate business bank accounts should be part of these distinct financials.
And then separate accounts may seem inconvenient, but they are a necessity for any serious business owner from a tax and legal standpoint. especially if you want to accomplish your professional objectives.
Also Your company’s finances will be simpler, and separating personal spending from business-related ones will be less stressful and confusing for you.
The benefits of a business bank account
You need to be reminded that the major benefit of opening a business bank account is to create separation between your business and personal finances.
And for sure when you have a separate business bank account, you’ll find it easier to keep track of your business financial statements. Plus, you’ll avoid unnecessary legal exposure of your personal assets when the funds are kept separately.
As your business grows, you may need the help of credit at some point. With a lengthy bank record of your business’s success, you’ll find it easier to obtain financing.
Again with a mix of personal and business funds, it can be difficult for a potential lender to assess the business’s creditworthiness. Beyond the legal and financial benefits, a business bank account shows your clients a professional attitude toward your business.
The Drawbacks of a business bank account
The drawback of opening a business bank account is that it can take time to open the account. Plus, having another bank account requires more financial maintenance. However, the time costs of opening a business bank account are easily outweighed by the benefits.
Things I need to open a business bank account
Yes, here’s what you’ll need to collect in order to open a business bank account.
1. Social security number or Employer Identification Number (EIN)
In order to open any bank account, you’ll need your social security number or employer identification number (EIN). If you are opening a business bank account, then an EIN is preferred. But some banks will allow sole proprietors to use their social security number.
You can obtain an EIN for your business by applying on the IRS website. You’ll need to have your Social Security number and business paperwork ready to get your EIN quickly. There is no charge to get an EIN.
2. Personal ID
Although you are opening a business bank account, most banks will require some form of personal identification.
The bank wants to verify that you are connected to the business before moving forward. You can use a driver’s license, a passport, or other forms of identification.
3. Business entity documents
When you set up your business entity with your state, you’ll receive documentation of the legality of your business.
You can bring the paperwork provided by the state to the bank. With those documents in hand, the bank can set up your account.
4. Any “Doing Business As” (DBA) documents
You may or may not need to include a copy of any Doing Business As (DBA) filing documents when opening a business bank account. Many businesses will need to take this extra step because they operate under a different name than their legal entity.
For example, you may own Susie’s Web Development and Creative Enterprise LLC. But you may operate as Susie’s Web Development.
Since you aren’t operating as the full legal name, you’ll need to file a fictitious business name with your state. This is otherwise known as a DBA – or “doing business as” name.
5. Monthly revenue statement
If you are applying for business credit, the bank will want to see the details of your business revenue. With that, you’ll need to provide a comprehensive revenue statement.
This will also help the lender gauge your ability to pay back the loan or extension of credit.
Types of business accounts
Right after you have what you need to open a business bank account, you can start the process of opening the account. Here is a closer look at the most common business bank accounts.
The Business checking account
Incase you are accepting payments from your customers, issuing refunds, or making purchases, you need somewhere to process and keep those funds.
That place would be in a business checking account. Your business checking account also provides you with a place to monitor your business cash flow and day-to-day transactions. You can do this easily by connecting your account to business money management tools like Quickbooks or Wave Apps.
You’ll also have the ability to delegate financial tasks to trusted employees by adding them to the account. This way, you can avoid having to give them cash advances or reimbursements for certain business transactions they can make on your behalf.
Also, you’ll be able to monitor the transactions they are making easily by logging into your account, and you can also set limits to how much they can spend.
In addition to having a business checking account, you can also start establishing a relationship with your bank over time in the event that you need financing for your business in the future.
Business savings account
It’s certainly a good idea to have business savings accounts where you can put aside funds for things like taxes, payroll, future projects, products, or whatever long-term ideas you might have in mind for your business.
Having business savings means that instead of having to rely on outside financing and paying interest you may be able to finance things in your business on your own.
It’s also a good idea to separate these accounts by purpose to avoid any confusion and for proper bookkeeping.
Business credit or charge card
Having a business credit or charge card allows you to establish your business credit history with the commercial credit bureaus over time. This is important in the event that you require further financing for your business.
In addition, having a business credit card may provide you with certain types of purchase protection and may also provide you with the benefit of earning rewards or points based on your transactions.
You’ll also be able to add on employees and monitor their transactions. Keep in mind though, that similar to your personal credit cards, you should avoid carrying a revolving balance and instead pay your balance off in full each month.
When opening a business bank account based on your business entity
Businesses are created in all shapes and sizes. But each will fall under a certain business type – sole proprietorship, partnership, LLC, or corporation.
The type of business entity you operate under will determine the type of paperwork you’ll need to collect to open your bank account
Sole proprietorships are the simplest form of a business entity. You will not have to take any formal steps to form a sole proprietorship. With that, you can open your business bank account with your social security number.
Partnerships will require an EIN in order to form a bank account. You’ll need personal identification to prove that you are part of a partnership. Additionally, you’ll need the partnership agreement and any organizing documents you filed with the state.
Limited Liability Company (LLC)
When you form a Limited Liability Company (LLC), you’ll file articles of incorporation and draft an operating agreement with any partners. You will need to bring both of these documents and an EIN to open a business bank account. Plus, you should have personal identification on hand.
A more complicated company structure is a corporation. Along with that, you’ll also need to bring other paperwork in order to open a business bank account.
And bring your corporate bylaws, articles of incorporation, business licenses, and any supporting papers for your DBAs (Doing Business As).
Your most necessary step in business is probably to open a business bank account. Every business owner should think about severing their personal finances from their company as soon as possible. Look for the account that best suits your company’s needs when you evaluate your possibilities.
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