As you begin to grow your small business you’ll probably start to notice lots of overlap between your personal and business finances. In the beginning, it seems much simpler to have one bank account to keep track of all your payments. However, there are plenty of reasons why it’s very important to separate your business finances from your personal finances by opening a business bank account.
What You Need to Open Your Business Bank Account
First things first, you’ll need to gather a few things before opening your account. To keep things simple, I strongly recommend using the same financial institution as your personal account. Here’s what you’ll need:
- Company EIN (or Federal Tax ID Number). If you haven’t already done so, you’ll need to obtain an EIN for your business. You can request an EIN from the IRS. I do not recommend using your SSN to open a business bank account.
- Articles of Incorporation / Organization. If your business is registered as an LLC or Corporation you’ll need to provide your Articles of Incorporation / Organization as well as your operating agreement.
- Certificate of Good Standing. Occasionally a bank will ask for a certificate of good standing from the sate. This essentially shows that your business is up to date with state taxes and other requirements.
- Tax ID, SSN, and DBA (For sole proprietors). Sole proprietors need to provide their Tax ID, social security number, and a DBA registration if you’re operating a business under something other than your personal name.
Now that you know what you need to open your account, here are a few reasons why you should open the account.
Protect Your Personal Assets
The majority of business owners register as an LLC or Corporation because it helps protect their personal assets. For example, if your business is sued or goes into bankruptcy, the separation allows you to put the liability on the business not yourself. In order to maintain this personal liability protection you’ll need to draw a clear line between your personal and business finances. The best way to accomplish the separation is by creating a business bank account. This way you ensure that your business operates as its own entity separate from you as an individual.
Easier Accounting
One of the best perks of opening a business bank account is that it makes accounting a breeze. When you have separate accounts you can easily distinguish between expenses. I suggest pairing your business bank account with a business credit card so you can easily track and record potential tax deductions. Often times banks will offer additional perks and incentives when adding a business credit card to your account so it’s always best to inquire.
Increased Payment Capabilities
When opening a business bank account you’ll likely have the option to process credit and debit card transactions. There are plenty of payment tools and online payment solutions that allow you to easily set your business up for payment processing. The more payment options you give to your clients the more you’ll increase your bottom line, its that simple. With the introduction of digital payment solutions like eCash and digital wallets, consumers are doing away with traditional payment methods like cash and check. Don’t sell yourself short, go find a payments platform that offers a wide variety of payment options.
Increases Credibility with Clients
Although it’s not a deal breaker, business bank accounts will profoundly increase your credibility among clients. If you’re writing checks using a personal bank account it can come off as a bit unprofessional. You want clients to be confident in you as a business owner. While it’s a small detail, a business bank account will surely increase client and contractor confidence in your abilities as a business owner.
As you scale your business, it’s absolutely crucial to set a proper foundation. Among other things, setting up a business bank account is an integral part of setting this foundation. You’ll keep your books organized, build business credit, and much more. That being said, it’s probably a good idea to go out and setup your business bank account if you haven’t already done so.
