Business Banking for Startups
Why having a business bank account makes dollars and sense
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.
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.
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).
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.
- 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 check card. You may need one in case you need to build credit to obtain a credit card.
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