Welcome to our weekly Buyers Guide series where we share everything you need to know about specific business purchases, including the questions to expect and the questions to ask. Here’s how to choose the right business bank account for your business.
Opening a business bank account is a critical step for a business of any size. Aside from the legal reasons to keep personal and business funds separate, there are also tax ramifications to consider.
WHY YOU NEED A BUSINESS BANK ACCOUNT
Bank account needs vary for every business at different stages of growth. However, one thing is universal – having a business bank account helps to prevent against potential liability issues. Assuming you’ve already set up your business properly as an LLC, S Corporation, or C Corporation and also obtained business insurance, opening up a bank account separate from your personal finances is a logical next step. It’ll allow you to avoid co-mingling funds, and will provide for a more organized setup come tax season. Lastly, it’s important to represent your business as a legitimate, viable entity, and a proper business bank account will do just that.
WHY YOU NEED A BUSINESS BANK ACCOUNT NOW
The sooner you differentiate your personal and business finances, the better position you’ll be in to successfully file taxes. Separating business expenses from a personal bank account can be time consuming and cumbersome. Establishing these disciplined habits early will prevent costly penalties related to IRS audits. For example, there are strict IRS rules surrounding working from home and what can be deducted as business expenses. If you’re using your personal bank account for legitimate business deductions, the IRS may frown heavily upon this.
IMPORTANT BUSINESS BANK ACCOUNT CONSIDERATIONS
If you have a general idea of your business’s potential growth trajectory, choosing the right business bank account early can help you avoid costly opportunity costs related to switching, including, but not limited to, invoicing, payroll, credit card payments, and ancillary benefits from the right bank – venture debt loans, small business loans, business credit cards, etc.
Here are top considerations throughout the business bank account buying process:
QUESTIONS TO ASK THE BANK:
- Do you have relevant experience?
- What size business do you typically service?
- How responsive are you?
- What are your contract terms & conditions of service?
- What services and reporting are covered under this agreement?
- Do you charge for basic advice?
- Is there a minimum monthly fee for this business checking account? If so, is there a minimum monthly balance required to waive this fee?
- Can you send me a list of all other fees related to other services like wire transfers?
- Are you equipped to help me with other banking products as my business scales (or now)? These products would include things like venture debt, small business loans, and payroll.
- What interest rates do you offer for your checking and savings accounts?
- Do you integrate seamlessly with any third party software? For example, Bank of America business checking integrates with, and offers free payroll via Intuit.
QUESTIONS THE BANK WILL ASK YOU:
- Do you have your article of incorporation or business registration?
- Can you provide your Employee Identification Number (EIN) from the IRS?
- What is the size of your business and growth plans over the next year?
- Can you cover the minimum deposit?
- Depending on if you need a line of credit, the process will be more stringent.
Business bank account fees vary, but generally speaking, minimum monthly fees can be waived while maintaining a minimum monthly balance or utilizing additional business products for a given bank. Banks that specialize in small business or startups might also waive these fees outright, no matter the balance – just ask. It’s also important to consider additional prices and fees for business bank accounts, such as wire transfers, ATM fees and bounced checks.
It’s important to read through your bank account’s general terms and conditions before signing anything. It’s usually unlikely that there will be a minimum contract length, but there might be fees related to withdrawing all funds and closing an account.
Are they available to you when you need them? Some bank account customer service teams might work non-holiday business hour only, others might be available to you after hours and on the weekends. When speaking with references, inquire about their level of satisfaction with customer support.
Ask for the ability to speak with businesses in similar industries, of similar size, and with similar accounting needs. If possible, try to identify a client that they don’t list as a reference to perhaps learn some of the downfalls with the firm.
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