Whether you’re starting a new business or looking to expand an existing one, business bank accounts can be a valuable tool. When properly used, they can help you manage your cash flow, keep track of business expenses for tax time, and save money for future plans, upcoming expenses, or a rainy day. Here’s what you need to know about opening business bank accounts, and using them effectively:
Every business needs a bank account
It doesn’t matter whether you’re a sole proprietor, an LLC, or some other kind of business structure – you need a business bank account. It can be tempting, especially if you’re a sole proprietor or a single-owner LLC with no employees, to just put the money you’ve earned in your business straight into your personal bank account. But you shouldn’t do that.
Why not? Because using a business bank account helps you keep your business profit and expenses separate from your personal salary and expenses. That’s valuable when it comes to tax time and you need to take deductions for all those office supplies you bought or fees you paid for services relevant to your business. Having a business bank account will make it easy to identify your business expenses to the IRS.
It’s easy to open a business bank account online
Business owners in some industries, like money services, telemarketing, gambling, or precious metal dealing, will need to go into a bank branch in person to open a business account. But most business owners will be able to easily open a business account with an online bank. Depending on the structure of your business, you should be able to open a business account with your social security number or business tax identification number, your business license or partnership agreement, and other documents relevant to the creation of your business.
You need more than one business bank account
Yes, that’s right – you need more than one business bank account. You should have at least three – one for bills and expenses, one for quarterly tax payments, and one for a savings or rainy day fund.
Having multiple business bank accounts helps you manage cash flow, because not all the cash that will flow into the business is yours. With every payment you receive, you’ll need to set aside some to pay business taxes, payroll, and contractor payments. You’ll need to budget for operating expenses like new inventory and supplies, rent, equipment, and utilities. And you’ll need to plan for the future by setting aside money to fund upcoming expansions or simply to help your business weather lean times.
It’s a lot easier to do all that financial organization when you have multiple bank accounts in play. By using one account to pay bills and expenses, one to save for and pay quarterly taxes, and one to plan for a rainy day, you’ll be better able to manage your business’s cash flow – and that’s important, because cash flow problems can cripple your small business. In fact, cash flow problems are the reason for 25 percent of start-up failures.
Having multiple business bank accounts can also insulate your company from the effects of financial crime. The only information an unscrupulous individual needs to use your business bank account to pay his or her own bills can be located right on your checks – your account number and your routing number. If someone starts stealing money out of your business bank account, and you only have one, you’re in for a world of hassle. You’ll have to close that account, which may have outstanding checks to vendors, suppliers, and employees. It’ll be easier to close the account and make sure your outstanding payments are still on time if you already have another business banking account. It’ll also ensure that a criminal with one bank account number can’t drain all of your funds, because they’ll be spread out over multiple accounts.
Business bank accounts, when used correctly, can help you budget your business’s money for long-term success. Every small business owner needs at least one business bank account, but having multiple accounts makes it even easier to budget for your business’s needs and plan for your business’s future. Open your next business bank account today.
