How to Set Up Your Business to Receive Payments
One of the best feelings in the world is receiving that first payment from your business activities.
However, when it comes to keeping track of everything, it’s important to make sure that your business is properly set up to receive payments. No matter your situation, you want to have planning in place to ensure that your money goes where it belongs. It’s much easier to keep track of that way — especially when tax time comes around.
As you prepare for long-term success, here’s what you need to know about receiving payments for your business:
Set Up Your Business
You can receive business payments as a sole proprietor at any time. Just have your clients make out a check to you or send you money via an online payment processor. It’s even possible to get an EIN and a business bank account (or at least a DBA — “Doing Business As”) as a sole proprietorship.
However, if you want to operate as an LLC or some sort of corporation, you need to set up a business properly, with articles of incorporation. You can use a website like LegalZoom for help in this area. An accountant can also help you set up your business and take care of the necessary paperwork.
Make sure you do your homework ahead of time so you set up the right organization and structure. You don’t want to end up with the wrong type of business. In many cases, you can change it later, but it helps to research ahead of time to see what might work best for you, whether that’s an LLC, S-Corp, C-Corp, or some other type of organization.
If you have partners, make sure all of their information is accurate as well.
Get an EIN
One of the first things to do is get an Employer Identification Number (EIN) for your business. You can obtain an EIN online through the IRS. In many cases, it’s possible to get your EIN almost immediately upon applying online.
You can also file the SS-4 Form through the mail if you don’t mind waiting longer.
However you go about it, getting an EIN in an essential first step because you will need this important number if you expect to open a business bank account.
Your EIN can also be helpful if you want to receive payments through a processor like Due.com or PayPal. You can use your EIN whenever you fill out tax information related to your business.
Open a Business Bank Account
As you begin to receive payments, you need a place to put them. Open a business bank account to make this process easier.
Having separate accounts is important as a business owner. First of all, it’s a good idea to keep your business assets separate from your personal assets. Second, it makes record-keeping much easier. When tax time comes around, it’s much easier to take care of everything if it’s all in one place.
Your business bank account is where you should have your income deposited. When my clients pay me via Due.com, the money is deposited right into my business bank account. I can use that business bank account to make purchases for my home office. I like to have a little bit in there for business expenses. The rest I transfer to my personal account as a “distribution.”
Set Up to Receive Payments through a Third-Party
In today’s world, it’s important to accept a lot of different payment methods. Your customers and clients have their own payment preferences. One of the best ways to make sure you are accommodating is to use a third-party processor.
You can establish a merchant account with a card processor, but it can be burdensome and expensive to do so. One way to make things easier on yourself is to receive payments through a site like Due.com, PayPal, and other websites. When you use these types of processors, credit cards are usually taken care of. Due.com accepts credit card payments on your behalf and charges one low rate for transactions.
It’s also possible to use processors like Square and PayAnywhere to accept physical credit cards from your mobile device. This can be helpful if you have physical items to sell, and you do so in person.
Don’t forget that you can also accept payments into your business account by ACH transfer, or by using person-to-person apps like PopMoney and Venmo.
Figure out what works for you. You might use a combination of methods to receive payments for your business.
What if You Use a Fake Name?
Earlier, I mentioned DBA accounts. This is a way for you to do business under a different name than your own. It can also be a way to set up another account for another business. For example, I recently set up an account for a collaborative podcast I’m working on. We didn’t want to form an LLC, so we went ahead and set up a DBA using my own company.
This allows us to “do business as” another entity without the need to file articles of incorporation or form a new business. It’s even possible to get a separate EIN for the DBA designation.
You might need to file with the state in order to set up your DBA. In some cases, you might also have to publish a notice in the newspaper. Check individual state regulations so that you jump through all the proper hoops.
State Business Requirements
Before you set up to receive payments, make sure you know the requirements for businesses in your state. Your state’s Secretary of State should have information on what you need to do in order to set up your business and begin doing business.
Don’t forget that you might need to file a report with your state each year. Sometimes it’s just a matter of updating your business information each year. In some states, though, you have to pay a renewal fee. Look at the requirements in your state so you are set with everything you need to do in order to stay on top of reporting requirements.
Have a System
For many people, it seems weird to set up a separate bank acount to receive business payments, but it’s an important step as your business grows. Even if most of your money goes through the business account to end up in your personal account, that flow is a good idea.
Almost all of the money I receive for business ends up in my personal account. As a freelancer, that’s how it works. However, I have a separate business bank account and a business PayPal account. I also have a business credit card. Having these systems in place means that I can easily keep track of business expenses and have an accurate report to send to the IRS. It’s much easier that way, and can be advantageous in the event of an audit.
In the end, it’s vital to stay on top of the situation. Keep your business and personal accounts separate, and plan out how you will receive payments for your business. Once you have that plan in place, you can smoothly manage your income and expenses for business, and then distribute everything else as pay to yourself.