Congratulations! You’ve successfully formed your first company after filing Articles of Incorporation with your local Secretary of State’s office. Unfortunately, the administrative process of incorporation is not yet complete. There are a few more things that you’ll want to do to ensure maximum success. One of the steps you need to take after incorporation is opening a business bank account. Below, you’ll find a comprehensive guide to help do so.
Why Should You Open a Business Bank Account?
We often hear from owners of single-member LLCs or S-Corps, in which they are the only member. These individuals often express that they don’t feel the need to open a business bank account. They indicate that with online technology and smartphone apps, they can track their business transactions easily. However, we feel as though this is a significant mistake that new business owners tend to make. A business bank account typically provides a:
- Credit Card
- Savings Account
- Checking Account
- Merchant Services Account
Merchant services accounts allow companies to accept credit and debit cards as a form of payment. This is one of the most prominent benefits of opening a business bank account. If you plan on selling goods, this is likely a given. However, those selling services could also gain an advantage from a merchant services account.
For instance, imagine you form an LLC that provides consulting and marketing services. In the past, you may have requested that your clients pay you via PayPal, Google Cash, or wire transfer. With a merchant services account, you provide them with a much more convenient payment method.
A business account could also prove to be beneficial over your personal account because it offers limited personal liability protection. Your personal assets will never be at risk. Additionally, business accounts can help protect your customer’s information. For instance, many merchant services accounts go out of their way to preserve purchase information.
Secondly, a business account is significantly more professional than a personal account. Not only does a business account demonstrate professionalism to customers, but it also does so to employees. For instance, business owners could secure an employee credit card for those in the finance department, allowing them to handle day-to-day transactions. This would not be possible if you were to use your personal account.
Lastly, using a business account could protect your credit. Your company’s credit card may have a line of credit significantly more substantial than your personal credit lines. Plus, if you need to make a large purchase for your company, such as new equipment, you won’t have to tap into your personal credit line. Any late payments will impact the company’s credit, not yours.
What Do You Need to Open a Business Bank Account?
If you would like to open a business account, the first thing you’ll need is an Employer Identification Number. You can obtain this number from the Internal Revenue Service, which issues one of the numbers to each company in the United States. This number is exclusive to your company.
Realistically, you should obtain this number regardless of whether you plan to open a business bank account. The number is necessary to pay taxes and hire employees. However, it’s also required to open a business bank account. The bank officer will ask you to provide this number before processing paperwork. This is the bank’s way of ensuring that your company is compliant. It also links your company’s financials to your tax information.
Once you have secured your EIN, you can call or visit various banks. Banks could also ask you to provide other information, such as your Articles of Incorporation or your corporate bylaws. It would be in your best interest to have these documents on hand when visiting, just in case.
We also recommend that you be upfront with your banker when telling them about your business practices. This will allow your banker to hone in on the best accounts for your company. For instance, we do not believe that companies should manage things such as payroll, taxes, income, and expenses for the same account. Your banker can set up accounts that fit your business needs. Don’t have employees? No need for a payroll account – you get the picture.
What to Look for in an Account?
There are a couple of factors you’ll want to consider when determining which bank is best for your company. First and foremost, you should not limit yourself exclusively to your personal bank. Many entrepreneurs are enamored with their own bank and choose to open a business account there if nothing else other than convenience.
However, they could be missing out on excellent rates or perks when they fail to evaluate all options. Your personal bank could be the perfect starting point, but we also recommend that you assess numerous banks so that you can determine the best fit for your company. Each company’s situation is different, but some of the things you’ll want to consider when opening a checking or savings account include:
- Interest rates
- Introductory offers
- Credit rates
- Early termination fees
- Transaction fees
- Minimum account balance fees
If you plan to open a merchant services account, you’ll need to consider another set of criteria. For instance, you’ll likely want to determine the discount rate, which is the percentage that you’ll pay for each transaction. The discount rate is typically around three percent.
Similarly, business owners should compare the transaction fees, which represents how much they are charged on every transaction. Other criteria include the Address Verification Service fees, monthly minimum fees, and ACH daily batch fees.
Speak with a Financial Professional
Opening a bank account for your business is a necessary step that owners should take immediately after incorporation. However, the process can be overwhelming, especially since entrepreneurs may not have any experience with business accounts.
The account that you open could have long-lasting implications for your company. We recommend speaking with an accountant or similar financial professional who can provide advice and guidance. This is an investment that many entrepreneurs find well worth making.