When does it feel real? When does it feel like you really own your own business and are legit? For some, it may be one that first dollar comes in, for others, it may be when they see the company name printed on business cards, while others may be waiting for their website to go live. No matter when it feels real to you, a big step in getting a business off of the ground is by opening a business bank account.
Why Should You Open a Business Bank Account?
Very small business may not see the point in opening a separate bank account from their personal one. But, having a separate bank account is important because it allows you to track revenue and expenses, which helps you to create budgets and financial forecasts.
The Small Business Administration uses P’s to describe why it’s important to have a business bank account: Protection, Professionalism, Preparedness, and Purchasing Power.
It’s also helpful for tax purposes. There’s no concern about dividing up which purchases were personal vs business related.
Choosing the Right Bank
Your first instinct may be to simply open up another account at your personal banking institution–and there’s no harm in checking out their business banking services. However, be aware that it’s possible that your personal bank may not be the best choice for your business.
6 Questions to Ask When Choosing a Bank for a Business Bank Account
Though having a business bank account is an important step in starting a business, don’t rush finding a bank. It is an important decision. Take the time to make sure that whichever bank you choose will be the right fit for your company and its vision.
1. Does the bank offer mobile or online banking?
Maybe this isn’t of interest to you, but mobile banking can save a lot of time. Look into what mobile options are available such as transferring money between accounts, depositing checks etc….
2. Can the bank extend you a line of credit?
This may not be something you need right now. In fact, most banks won’t even consider lines of credits for businesses under 6 months old, but it is a good idea to think about this as potential option in the future. Ask what credit options are available, what the limits are, what the interest rates are, and what the requirements are.
3. What kind of fees will you be faced with?
Nothing’s free in this world, right? That statement rings true with banking for sure. Take the time to find out upfront what the various fees and penalties are. Things to look for include:
- How many (if any) transactions can be made for free?
- What is the fee for any transactions?
- Is there a fee for dropping below a minimum balance?
- How much do I need in order to open an account?
4. What kind of benefits will you receive from this bank?
On the flip side, you don’t just have to be on the lookout for all of the bad things that could come from choosing the wrong bank. You also want to be looking for any of the good things that can come from choosing the right bank. Benefits might consist of:
- Being able to open to conveniently open the account online and perform most of your banking online
- Introductory offers such as cash bonuses or high interest rates
- No minimums required
5. What are the Merchant Account Options?
Having a merchant account means that you can accept payments via credit or debit card. In today’s digital age, this is an important aspect to consider.
A 2017 survey by US Bank reports, “Overall, 50 percent of survey respondents reported carrying cash less than half of the time.” Furthermore, “The instances where they spend this cash appear to be shrinking as well, with 46 percent claiming they use cash fewer than eight days each month, and 5 percent saying they never use it.”
You don’t have to open a merchant account with the bank where you do all of your business banking, and it may not always be the right decision. However, it can be convenient to have all of your accounts in one place, and it is smart to know all of your options.
6. What kinds of accounts should I open?
AJ Agrawal, the CEO of Alumnify, points out in an article for Inc. that having just one bank account for everything for your business can make things difficult come tax time.
Do you need separate checking and savings accounts? Multiple of each? This will be determined by the specifics of your business. Consult with your accountant for help.
For some business owners, the bank they choose is solely determined by if they receive a loan from them. Even if you feel like you don’t have a lot of wiggle room in your choice, it never hurts to ask these questions and learn all that you can about the bank.
Would you like advice on opening a business bank account? Contact Lumen Advisory and Finance!