How to Open a Business Bank Account

Why should I open a business bank account?

There are several benefits that come with opening a business bank account. Here are some of the top reasons to consider.

Separate your business and personal finances.

Once you get serious about your business, it’s important to set up a separate bank account so you draw a clear line between your business and personal expenses. It also gives you some liability protection.

Maximize your tax deductions.

By using a business account for all of your expenses, you’ll make it easy to deduct them when it comes time for taxes. That means you’ll have a smaller amount of taxable income, lowering your overall tax bill. Plus, with all of the purchases going through a checking account, you’ll have a clear paper trail to support your tax return. 

Understand your cash flow.

Streamlining your business banking makes it easier to analyze your cash flow. You know how much you have in the bank and can better understand your revenue and expenses. If you’re having trouble covering bills, you can use that information to figure out changes to make, such as boosting your invoice collection or cutting back on certain expenses.

Establishing a business bank account is an easy way to simplify all of your future accounting needs, both in terms of taxes and cash flow management.

What do I need to open a business bank account?

What is required to open a business bank account? Here are the documents to gather in advance so you’re ready for each step of the application.

• Employer Identification Number (EIN) – An EIN is your federal tax ID number issued by the IRS. Sole proprietors may use a Social Security number.
• Formation documents – Your business formation documents are issued after you register your business with the state. You may need to submit a copy as part of what is required to open a business bank account. 
• Ownership agreement – This is a contract between all of the business owners outlining the rights of each one. 
• Business license – Either your state or locality (or both) will have business license requirements, in which case you may need to submit a copy to your new bank.

This is a basic list of what is required to open a business bank account. Some banks may have separate requirements. In most cases, you should be able to submit electronic copies online for a quick application process.

Determine the right type of bank account for your business.

There are several different types of business bank accounts to choose from. 

Business checking account.

This basic account is a must-have to facilitate transactions, both expenses and receivables. With a business checking account, you’ll get access to debit cards, checks, ACH transfers, wire transfers, ATM deposits, and more. 

Consider how many users the account can accommodate, particularly if you have plans to grow your staff in the future. There may also be limits on the number of monthly transactions you can have before paying a fee. Make sure your account can accommodate the size of your business. 

Business savings account.

A savings account is a smart, risk-free way to earn interest on your cash reserves. Consider what APY you’ll earn and what type of withdrawal limits exist (often this is set at six per month).

While your earnings likely won’t be huge, compare the APY of multiple accounts, particularly if you have high profit margins with lots of cash to save.

Business certificate of deposit.

A certificate of deposit (or CD) can offer a higher interest rate than a traditional business savings account. However, the deposits are locked in for a set term length. 

Usually you’ll get a higher rate for the longer maturity term. They can last anywhere from a few months to several years. If you end up withdrawing funds before the CD matures, you’ll have to forfeit a few months’ worth of interest.

Merchant account

A merchant account is designed to support customer transactions so that they can pay your business in multiple ways. It’s typically used as a go-between from your business checking account and your customer making a debit or credit card payment. 

It’s important to evaluate fees, including set-up costs, monthly service fees, and transaction fees. Also, see what type of hardware or POS system is used, and whether you need to rent or purchase compatible equipment.

Choose a bank for your business account.

A business bank account can come equipped with a number of different features and at different pricing structures. Evaluate all of your options before you choose one to make sure your account can grow with your business. Here’s what to consider.

Account requirements 

Understand the bank’s requirements to open and maintain an account. This typically includes a minimum deposit and potentially a minimum daily balance moving forward. You may also have minimum or even restrictions on the number of monthly transactions.

Fees

Does the account come with a monthly service fee or any other charges? Do you have to pay for debits after a certain number of transactions each month? Compare the numbers to make sure the account features support the costs.

Checking features

Determine the most important features your company needs in a business checking account. This could include:

• Merchant services
• Bill pay
• High monthly deposit maximum
• No-fee transactions
• Multi-user access

Many banks have multiple levels of business bank accounts to choose from. 

Digital perks

Different banks have different levels of digital services, such as mobile check deposit, fraud monitoring, and online bill pay. Some banks may also offer easy integration into major accounting software. You could save significant time and money by choosing a bank that works with your existing systems in place.