If you’re a minority entrepreneur just starting out in business, there are many things you need to do. Choosing a business name and legal structure, creating your business plan, developing a marketing strategy, and setting up accounting and record-keeping systems are just a few priorities that should be on your list. You’ll also need a business checking account — an essential tool for keeping personal and business finances separate and establishing your firm as a credible entity.
Who Needs a Business Checking Account?
If you’re wondering if your company needs a business checking account, the short answer is yes. Any business owner worth his salt keeps his personal and business finances separate, if for no other reason than to avoid getting in hot water with the IRS. If you claim business deductions that have been paid for out of your personal checking account, for example, it may be difficult to prove they’re legit. Further, you may miss claiming deductions to which you are legally entitled if your personal and business finances are a jumbled mess.
Mixing your personal and business finances may also lead to legal difficulties if your business is sued. Additionally, many vendors and suppliers simply won’t do business with you if you’re writing checks from your personal account. Like your customers, they want to know that you (a) take your business seriously and (b) are someone they can count on to pay their bills.
Lastly, if you want to qualify for a loan somewhere along the line, the lender will require that you have a business checking account.
All that said, a business checking account doesn’t have to cost you a lot of money. Although no checking account is totally free (think ATM withdrawal fees, wire transfer fees, transaction fees, etc.), you can minimize your cash outlay by knowing the kind of restrictions you may encounter and choosing an account that’s the best fit for you.
What to Consider When Opening an Account
Part of choosing the right business checking account is knowing what questions to ask upfront. Many banks will advertise that their accounts are “free,” but there will always be circumstances under which that’s not the case. For example, some banks may require that you maintain a minimum average daily balance. Drop below a certain number and you’ll start paying a monthly fee. Other banks allow business customers a certain number of “free” transactions per month. Go above that number and you’ll be paying a per-transaction fee. Keep this in mind when you’re thinking about where to take your business especially if you anticipate making lots of withdrawals.
Additionally, some banks give business customers a break on fees if they open their account with a minimum deposit. This is usually a fairly large amount, but if you’re starting out with a substantial amount of cash on hand, it’s worth finding a bank that offers this perk. Some banks will even offer a cash bonus if you open an account with a certain dollar amount. Just remember that you will usually need to maintain a minimum balance in the account for some time (usually at least three months) to get that reward.
Convenience and Customer Experience
In addition to considering the cost of doing business with a certain bank, it’s important to think about the type of bank that will best suit your needs. As a rule, smaller, community banks offer more personalized service. And if you have a one-on-one relationship with the financial institution, you may be able to negotiate your way out of paying certain fees. The downside here is that you will usually need to show up in person to speak with someone you know. Even small banks with an internet presence tend to offer less information and fewer services online.
Larger banks, on the other hand, tend to skimp on customer service, but usually, offer a lot of options for managing your account, including more physical locations and services you can access online. So if you don’t need a personal relationship with your banker and just want a “one-and-done” kind of account, you may be better served by a large bank.
Another option to consider when thinking about a business checking account is an online-only account. Because they save so much on overhead, many online banks offer a significantly lower fee structure and more perks than brick and mortar banks. Accounts are usually very easy to set up and often have a low opening balance requirement as well.
The Bottom Line
No matter what your business model or what products and services you sell, a business checking account is a must. It will lend your business more credibility, help you manage relationships with vendors and suppliers, and help you stay on the good side of the IRS. That said, take your time and learn about the various banking options available to you. Making smart decisions can save you time, money and headaches in the long run.
The Carmoon Group Ltd. is a full-service insurance broker located in Hicksville, New York. Our seasoned professionals have over 20 years of experience servicing the needs of businesses across the United States. We offer comprehensive insurance programs, risk management plans and access to capital to qualified businesses. Just give us a call today to schedule your free consultation with one of our staff. Or if you prefer, reach out online and we’ll get back to you as soon as we can.