One of the biggest mistakes you can make as a business owner is to have the same bank account for personal and business finances. It makes it unnecessarily hard to measure how your business is performing financially because you have all these transactions happening that are not business-related.
That’s why the very first step after registering your business should be to open a business bank account. However, unlike a personal bank account, business bank accounts come with unique requirements that you have to fulfill to get the account approved.
In this post, we explore the whole process of opening a business bank account including the necessary documents, the different types of business bank accounts, and how to choose the best bank for your business.
Note: If you want a business bank account, then try Bonsai's business account for consultants, coaches, lawyers and other professional services. Our checking account has no hidden fees or minimums and is simple to create. Our account can help you manage your finances, save on taxes, and get paid faster. Try it our for yourself. Sign up today. If you are looking for the best bank for home services, construction, barbers, or freelancers check out BlueVine as a great option!
We will try to cover everything you need to open a business bank account but, the requirements may vary depending on the bank, your business entity, and the location of your business.
This is a mandatory requirement for anyone looking to open a business bank account. After all, the bank needs to confirm that you are who you say you are and also ensure that nobody else can access your account.
For personal identification, you are required to present a government-issued photo ID which could be your driver’s license or your passport.
Some banks may also require that you provide your personal mailing address and social security number.
If you are a business with many owners, most banks typically require that you provide the personal details of all owners with a stake of 25% or above in your business.
This is a mandatory requirement for all business structures except a sole proprietorship. Although you can't open a bank account with just an EIN, it is a necessary provision. It’s not a legal requirement for sole proprietors to have an Employer identification number and, therefore, the bank allows them to use their social security number instead.
For other business structures, you'd need to check the bank's requirements to open a business checking account without an EIN.
You will be required to have a copy of your business formation documents before you open a business account.
For sole proprietorships, this means the business name registration form and DBA certificate if applicable. If you are a partnership then it's the Partnership agreement.
For LLCs, it means Articles of Organization, and for Corporations, it means Articles of Incorporation.
Basically, the bank is looking for information about the business such as business name, address, DBA name, entity type, industry, and the type of business you are running.
The bank needs documents highlighting the ownership agreements between members in an LLC, Corporations, and partners. These will outline the responsibility of each member and their specific rights in the business.
Your business license is necessary for the financial institution to prove that you have permission to legally conduct business in your state or city. I know that some states don’t require that businesses have operating licenses and in these cases, the bank will make an exception.
If your business wishes to open a merchants service account to process debit and credit cards, it’s required that they provide the bank with the business's average credit card revenue. If it’s a new business, you won’t have this information so what the bank will need is an estimate of the expected revenue from credit cards.
Let's review all the steps you need to take to open a bank account.
Here are the three main types of business bank accounts that you can open:
This is an account that allows you to receive and withdraw money at any time. It’s the account you open for everyday use such as buying business equipment, paying employees, rent, and other business expenses.
When opening a checking account with any bank consider these factors, maximum monthly transactions, bank accessibility, and all related fees. Some banks also offer interest on business checking accounts under certain conditions so, watch out for those.
This is an account for business income that you want to save for the long term. And the best thing about business savings accounts is that they earn you interest. However, they will come with conditions like a minimum deposit that can earn interest and the inability to withdraw until a certain period has elapsed.
The annual percentage yield and account fees also vary from one bank to the other.
This is the account you open if you plan on receiving debit and credit card payments. Something to note is you can’t open a merchant’s service account unless you first have a checking account.
Once you know the account you need for your business, the next step is to find a bank with the best benefits. Here are some things to consider when choosing a bank for your business.
We have already looked at the documents that banks will require in order to approve your business bank account. Put all of them in order and visit your bank of choice.
If it’s an online bank, the better, you can complete the application process from anywhere.
Complete the application process and wait for the approval. The approval period will vary for different banks.
Once they have certified that the documents are okay, your account becomes activated. However, some banks may require that you make an initial deposit to activate the account.
Bonsai's business account is an automatically approved business bank account so you do not need to apply.
It depends. Each has its own benefits but if I was to go with one then it would be online banking because of the convenience it offers.
And this is not just because you can apply from anywhere, it’s also because online banking comes with more flexibility. They give you more ways to manage your accounts and their customer service is always very available and eager to help.
And, you don’t have to look far to understand what I’m talking about. We have just the perfect online banking solution for you..
There are many benefits of having a business bank account. We'll quickly go over some of them.
If you have just one account for business and personal use and the business suffers major losses or goes bankrupt, creditors will come after the whole account including income that did not come from the business. It doesn’t matter if you are running a limited liability company or a corporation both of which offer personal liability protection.
Unless you have a business bank account, the IRS will assume you are running your business as a hobby and will, therefore, not allow you to deduct business expenses from your income. So, you end up paying more tax than you should.
As we mentioned, having one account for both business and personal needs gives you the extra work of separating personal transactions from business transactions.
Personal bank accounts do not support payments through debit and credit cards which is a major limitation in these current times. You end up losing business because customers can only pay through cash or check.
If you are running a partnership, a multi-member LLC, or a corporation, your partners also want to know what’s going on with the business funds. With a business account, they can all have access but with a personal account, it’s tricky because you have other funds in the account that are not business-related.
Your business looks more professional when transacting through a business account complete with details about your business than with a personal account. Also, as a customer, you feel more secure making payments to a business than to an individual. Especially if it’s an online business and you have not personally met the business owner.
Bonsai's business account is our new business checking account that provides you with an easy and efficient way to manage, save, and spend your funds. The tool ticks all the best features of a business checking account.
To begin with, you can integrate it with our other tool, Bonsai Payment, or any other tool you have to facilitate direct payments to the checking account. If you want to make purchases or fund a subscription, Bonsai's business account provides you with both virtual and physical cards to use.
With payments, you have the option to use virtual or physical cards.
But, if there is one feature that makes this online business checking account stand out is the ability to create envelopes for more granular management of cash.
The envelopes are meant to help you save money for different purposes. For instance, you can create an envelope for tax money where you will be saving only funds meant to pay your annual or quarterly tax.
Better yet you can automate the account so that when money comes into the checking account a certain percentage gets automatically allocated to a certain envelope.
Bonsai's business account also supports ATM withdrawals although you can only withdraw $300 in a single day.
As of right now, Bonsai does not charge you anything for transactions you make. Open an account for free today.
If there is one thing that’s clear up to this point is you can’t run a successful business without a separate business bank account. And now that you know everything you need to open one, the real question becomes which is the best account for you? And we have given you an option to consider. Ready to give it a try?
How entrepreneurs can best prepare to get approved for a small business loan
Explore Bonsai's business account - the integrated small business banking solution providing financial services for interior designers and other self-employed professionals. Compare your options and discover the Bonsai advantage.
A common question asked by many business owners is: how many business bank accounts can you have? Well, technically, as many as you want. You just need to meet certain requirements. We'll discuss it in this article.
