Launching a business entails many distinct steps and considerations. Because of the seemingly never-ending to-do list, it may be tempting to rush through the initial stages to have operations up and running as soon as possible. It is vital to have the proper business setup to avoid difficulties and save money over the long haul. Deciding on how you’ll manage the finances of your firm is a crucial part of the planning process. Moreover, deciding whether to open a small business checking account is one of the most critical financial decisions you’ll make in your business.
Even if you have the option of opening a business checking account or using your personal checking account for company transactions, a business checking account is required for every small business or professional undertaking. Professionalism dictates that you keep your company and personal finances separate. When setting up a business, one of the first things you should do is open a small business checking account.
Having a business checking account is essential to keep track of your business’s finances. The funds in this account will be used to accept payments from customers, pay employees and vendors, file taxes, and establish the company’s financial standing. Even if you’re just getting started, you’ll need a business bank account.
What Is a Business Checking Account?
Although both personal and company checking accounts offer services such as debit cards and check writing, small business checking accounts offer other features that personal checking accounts do not. When you open a company checking account, for instance, you can expect the following business benefits:
• Merchant services that enable you to process card payments
• Staff debit cards
• Bookkeeping integrations
• Payroll processing services
• Financial advisory services
A business checking account also differs from a personal checking account regarding account opening, charges, lowest deposit requirements, and minimum balance requirements.
A business checking account is used for everyday financial tasks like receiving and transferring payments electronically, depositing and withdrawing money using a company debit card, paying suppliers with checks, and depositing client checks.
What Are the Requirements for a Business Checking Account?
Opening a personal checking account is simple. Typically, the bank will request your identity document (ID) and Social Security number. A small business checking account requires you to provide the bank with extra information, making the account opening procedure more time-consuming. When creating a business checking account, banks frequently require the following documents:
• Employer Identification Number (EIN), or Social Security number (if you are a sole proprietor)
• Government-issued ID
• Business formation documents
• Business license
• Ownership agreements
Why You Should Have a Small Business Checking Account
Even if you can handle your business’s financial operations using your personal bank account, it is more convenient to open a small business checking account.
Some advantages of having a small business checking account are:
1. Accounting That Is Clean and Well-Organized
When you have a business checking account, one of the most essential benefits is that it allows you to keep your business and personal transactions separate. If you use your personal account for business, it would be harder to manage your bank statements and transactions. Important company financials, such as profit margins, will likewise be difficult to identify. Keeping your books organized and streamlined will be easier with a separate company account.
2. Clear Tax-Paying Process
It’s also easier to pay your taxes if you have a company checking account. It’s more difficult to submit your taxes correctly when you mix company and personal transactions. The Internal Revenue Service (IRS) can levy penalties if taxes are not filed appropriately. You can also subtract certain business expenses from your taxes if you have a separate company checking account, and you can easily spot such expenditures if your accounts are separated. The IRS needs confirmation that expenses are for business before they can be deducted. A business account statement is also required to substantiate your business costs.
3. Reliability and Professional Competence
If you want people to take you seriously, you must have a business checking account, no matter how small you start. A business checking account can help your small business look more professional and reliable. Having a business checking account is one way to demonstrate the legitimacy of your company. Potential clients will take you more seriously if they know they are paying or depositing money into a company account.
In an audit, how reliable and professional you are can affect how much you pay in taxes. If your business hasn’t made any money for three of the last five years, the IRS will classify your business as a hobby. You can’t deduct expenses in that case.
4. Liability Cover
Small firms are just as prone to legal issues as big ones. A disappointed client or an unpaid vendor, for example, can sue you. In addition, if you have a liability problem, the court will ask for your business banking records to see if corporate monies were mixed with personal cash.
If the court determines that your business is not being operated as a distinct legal entity, you may be held personally accountable if your business is sued or something goes wrong. If you have a business checking account, however, it proves that your firm is a separate legal entity that can sue or be sued, so if your company is sued, the court will not hold you personally liable.
In conclusion
If you are committed to starting a genuine business with the aim of seeing consistent growth, it is critical that you manage your company’s funds properly. And having a small business checking account from the start is a great way to make certain that you efficiently manage your business’s financial operations.