What It Is & Why It Matters
A business bank account ensures personal and business finances remain separate, preventing tax issues and streamlining financial reporting. It enhances business credibility with customers, vendors, and lenders while reducing legal and financial risks.
How to Set It Up
- Choose the Right Bank – Look for business-friendly services such as low fees, simple online banking functions, and integration with your accounting software. Be sure to check regulatory complaints and penalties, lawsuits, and customer reviews on the banks you are looking at. NerdWallet provides this list here exploring several current providers to get you started.
- Gather Required Documents – Typically, you’ll need an Employer Identification Number (EIN), business license, operating agreement (for LLCs), and incorporation papers. The Small Business Administration (SBA) provides some great insight into this step on the ‘business structure’ piece of their business guide, linked here.
- Open Multiple Accounts – Some owners consider a checking account for daily transactions, a savings account for tax reserves, a savings account for payroll reserves, and a business credit card to build credit.
- Enable Online Banking & Alerts – Stay proactive by setting up notifications for low balances, unusual transactions, and deposit confirmations.
Risks of Getting It Wrong
Mixing personal and business transactions can create tax liabilities, complicate audits, and make it difficult gain insights into your business performance. Unclear financials can also hurt your chances of securing loans or investor funding.
Common Mistakes to Avoid
- Using a Personal Account for Business – Leads to messy records and tax headaches.
- Not Setting Up Alerts – Can result in overdrafts or missed payments.
- Choosing a Bank Partner with Poor Integrations or Customer Service – You rely on your business partners to function well and a bank is a pillar in your operations.
- Ignoring Bank Fees – Some accounts have high or hidden fees that add up.
How It Connects to the Next Step
With a business bank account established, the next step is to choose the right accounting software to further enable your accounting needs and integrate with your bank.
ADC & Co. 