A first step to establishing your small business is setting up a business bank account. Many new and part-time small business owners are guilty of using their personal checking account to handle transactions. But that just won't cut it for a variety of reasons and can make tracking money confusing, especially at tax time or if you are audited.
Self-employed sole proprietors are frequently guilty of not having business bank accounts. But if you want to take advantage of the tax breaks that business ownership offers, and protect yourself from personal business liabilities, separating your finances is one important step.
The type of account you need depends on various factors, including the size of your business and whether you are a non-profit, sole proprietor, LLC or corporation. Here are three key reasons you can benefit from having a business bank account:
- Deducting business expenses. A personal account makes it harder to justify to the government that your business is legit if it could be mistaken for a hobby. It is also easier to miss deductions if your expenses are commingled with your personal transactions.
- It simplifies your record keeping and life, by managing cash flow separately from your personal accounts.
- It makes your business look more professional to clients by having checks with your business' name on it, for instance.
Action Steps
The best contacts and resources to help you get it done
Shop around
With so much competition, banks are throwing out incentives to lure small business owners, including free checking accounts and even cash payments of $50 or more just to open a business account. Fees and services vary by bank, so you may need to ask some questions.
I recommend: Surf the Web to save leg work when looking for the best bank for your buck.
Bank of America,
Wells Fargo, and
Washington Mutual are just a few of the biggies who cater to small business. For online-only banking,
NetBank offers small business accounts and services.
What's required
The information you need to open a business bank account includes basics such as your business name, a DBA ("doing business as" name) social security number and other details. One major piece of information you will need that personal accounts don't require is a government-generated employer identification number (EIN), also called a tax identification number (TIN).
I recommend: Many banks, such as
Wachovia, will list online what they require to open an account. You can obtain an EIN by completing an online application from the
IRS, or by calling their toll-free Business and Specialty Tax Line at (800) 829-4933.
Don't forget plastic
The world runs on plastic. Having a separate credit card for your business is often required to handle online transactions, and it makes it easier to keep track of purchases.
I recommend: Bank of America,
Citibank and others offer a variety of credit-card options for small businesses that are at varying levels of size and income.
American Express is another popular choice because you can accrue Membership Reward points and airline miles, and Amex categorizes all of your purchases in a year-end statement. Just watch for fees!
Tips & Tactics
Helpful advice for making the most of this Guide
- When considering bank fees remember they are partly tax deductible as a business expense.
- Opening an account early on in your business can help establish relationships needed for future financing.
- Look for banking extras such as online banking, payroll and tax services, and discounted employee banking. Try a VISA check card. You may need one in case you need to build credit to obtain a credit card.
The official source of Business Banking for Startups is
the Small Business Free Checking page at Business.com
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