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As a small business owner, you need to oversee all aspects of the business including the financials. Managing the finances of your business can be daunting but you need to understand all the components needed to track your business’s finances. Having business accounts is a good starting point.
It may be simpler and the least expensive to maintain the same business and personal bank accounts. The truth is many small business owners are tempted to use their personal bank accounts to manage their businesses.
Why do You Need Business Accounts?
It is a requirement of the IRS for incorporated businesses to have business bank accounts. The rule covers any business structure including incorporated sole proprietorships, partnerships, and corporations.
Unincorporated sole proprietorships are not legally bound to maintain business accounts. However, there are benefits that go with having one:
- Business accounts are needed when applying to accept credit card payments for your products or services. A business bank account allows you to accept payments via the point-of-sale-system.
- Business banking accounts are a prerequisite for securing business loans. You will not be approved for a business loan unless you have a business bank account where the lender can deposit the proceeds of your business loan.
Using business accounts instead of personal bank accounts to manage the finances of your business comes with additional benefits:
- Take advantage of business tax deductions. A separate account for business and personal expenses allows you to take advantage of tax deductions without eliciting an audit.
- Easier to track business expenses. Tracking income, expenses, and cash flow are easier when you have a separate business checking account.
- Semblance of professionalism. Your business will have a more professional image when clients can make check payments to your business (business bank account) rather than to you (personal account). They can also pay with a debit or credit card.
- Financial protection for you and your business. Separate business and personal bank accounts protect your business and personal funds.
Types of Bank Accounts for your Business
There are several categories of business banking accounts and choosing the best bank account for your business may be a daunting task.
Each type of business account has its unique purpose but one common goal – to help you manage the money of your business. Take a close look at these business accounts so you can choose the right bank account with confidence:
- Business Savings Accounts
A business savings account allows you to set aside a portion of the earnings of your business and earn a competitive interest rate on it.
It is important to note that federal laws allow you to make only six fee-free withdrawals from this account per month. Most business savings accounts do not allow you to withdraw through an ATM or write checks.
- Business Checking Accounts
Most businesses open a business checking account. It is a versatile bank account because it allows you to deposit funds, withdraw cash using a business debit card, transfer funds, and make check payments. This business account though does not earn interest because of the continuous in and out movement of funds.
A checkbook and debit card are typically issued. This type of account allows you to make unlimited withdrawals per month and is eligible for Federal Deposit Insurance Corporation (FDIC) coverage.
- Business Certificates of Deposits Accounts
A Business Certificate of Deposit (CD) account is an alternative to a savings account. This account earns more interest for your business. You, however, cannot withdraw your funds for a set amount of time.
The CD term can range from a few months to several years. Withdrawing funds before the end of the CD term comes with a steep penalty charge.
- Cash Management Accounts
A Cash Management Account (CMA) is an all-in-one online account. It is a saving, checking, and investment account. Most CMA accounts come with high -interest rates and lower fees than brick-and-mortar banks.
A CMA account also allows you to conduct all the banking requirements of your business.
- Merchant Accounts
You need a Merchant account if you decide to accept credit and debit card transactions. When a customer pays you, the funds go directly to your Merchant Account and are then automatically transferred. After processing, the funds are automatically transferred from your Merchant account to your other business accounts.
- Foreign Currency Accounts
A Foreign Currency Account, a Borderless Account, or Multi-Currency Account, is ideal if you are in the import and export business wherein you pay or get paid in another currency.
Your account balance, though, fluctuates as exchange rates change.
- Business Money Market Accounts
Business Money Market accounts (MMAs) is an interest-bearing account that combines the features of savings and business accounts.
An MMA allows you to write a check to make payments and comes with a Debit Card so you can make ATM withdrawals.
How to Choose the Best Bank Account for Your Business
Business banking accounts provide a lot of flexibility and ease for your business. But business accounts are unique in their own ways.
Here are some things to consider when choosing business banking accounts.
- Location
Are you planning to transact with the bank in person or via online banking. Thinking of the location of the bank vis-à-vis your business is important if you want to build a personal relationship with your bank.
- Minimum Balance Requirements
It is a requirement to deposit a minimum amount of money when opening and maintaining a business account. Choose a business account where you can meet the daily or monthly minimum account balance.
- Fees
Most business accounts come with several fees- maintenance fees, wire transfer fees, overdraft fees, below-minimum maintaining balance fees, etc. Make sure to understand these fees before opening a particular business account.
- Transaction Limits
Choose the business account that fits your daily, weekly, and monthly transaction limits.
- Interest Rates
If you want to open a high-yield business account then a business savings account is what you need to open.
- Introductory Offers
Banks occasionally make introductory offers to entice clients to open an account with them. Choose business accounts that offer such perks. Make sure to read the fine print.
- Integrations
Choose a business bank account you can use alongside your other business tools. The right integrations can help streamline the finances of your business.
- Account Features
Is the business account you choose available through a mobile app or online banking?
With these considerations in mind, you will be able to choose the best type of bank account for your business.
It is easy to open business accounts. After choosing the bank and the type of business accounts you want to open prepare these requirements and open your bank account/s:
- Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)
- Your business’s formation documents
- Agreements among owners (for partnerships and corporations)
- Business License.
It is more sensible to maintain at least one business bank account to make it easier to track your business’s day-to-day transaction.
Call or visit Greater Alliance Federal Credit Union and let us discuss the most ideal bank account/s for your business.