Why Do You Need To Open A Business Bank Account?
It is a common question asked by entrepreneurs before starting a business. If you are a sole proprietorship business owner, you will find that your personal account is more than enough to deal with any kind of transactional business needs.
The real problem will start when your business starts expanding itself. It is then that you will realize that your business needs have far surpassed what your personal account can offer.
Therefore, it is always a good idea to have a separate business bank account no matter what legal business structure you have.
Having a separate bank account helps you track all the business transactions with ease, and you can also separate all your personal liabilities from the business.
While some agree with creating a separate business account, we know that there are a few who are still asking the question –
Do I Need To Open A Business Bank Account?
If you are wondering whether or not you need a business bank account, you are asking the right question.
You need to understand that your business makes money, accepts transactions, and has expenses. Having a business bank account allows you to keep your business transactions and funds separate from your personal liabilities.
In addition, there are some perks you can enjoy with a business bank account.
- Clean Banking Records: Having a separate business bank account can really help you maintain clean banking records. This helps you with an efficient tax filing process.
- Purchase Protection: This helps to secure all your customer’s information while transacting with your business.
- Business Credit Cards: your business credit card will carry more offers than your personal credit card. Every time you use your business credit card, you will accrue credit points to help you with your future business transactions.
- Line Of Credit: Your business bank account will help you with a line of credit. That means you will be able to give your personal credit card some breather.
- Protection From Liability: If you have an LLC and are figuring out how to incorporate your business, you are legally required to have a business bank account.
- Credibility: A business bank account offers credibility to all your business transactions.
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What Documentation Do You Need To Open A Business Bank Account?
Before you open a business account, there are a few documents that you need to prepare beforehand.
- Business License.
- Doing Business As (DBA) Certificate.
- Business Identification Documents.
- Employer Identification Number.
- Articles Of Incorporation.
In addition to these documents, there are various factors that a business owner must consider before opening a business bank account.
While there are many institutes that offer business banking account services, you must look into every possible aspect to select only the best business bank account.
To know more about business bank accounts, visit the Management Library.
Let’s look into the required document more detailedly.
1. Business License
Just because you have an idea for a business doesn’t mean you can simply find the relevant fund and open a business. Just like to drive a car, you need a driving license; to run a business, you need a business license.
Having a business license ensures that your business becomes a legal entity and is accountable for all the actions taken – including taxes and finances.
Every state has its own set of rules and regulations when it comes down to opening a business. Check your state’s rules to see what kind of license you need for your business.
2. Doing Business As (DBA) Certificate
If you have a business, you need to have a Doing Business As (DBA) certificate. This certificate allows you to conduct business under a different name from your real business.
Well, this certificate is not necessary if you are doing a business with your actual business name. But the moment you start advertising and marketing, you might find the need for this certificate.
However, most banks ask businesses to provide DBA certificates since entrepreneurs aren’t allowed to use their personal bank accounts under their business names.
3. Business Identification Documents
As we have already said, your business needs to have a license to ensure it has a legal entity. In an LLC business structure, your business needs an individual identity. If your business follows the LLC structure, banks will ask for its identification number.
The business identification number ensures that it belongs to a particular business structure and maintains a separation between personal and business liabilities.
4. Employer Identification Number (EIN)
If you are a business owner with sole proprietorship, you will need an Employer Identification Number, social security number, and driver’s license.
EIN is also used to prevent identity theft, money laundering, or any kind of fraudulent financial activity.
Yes, there are a few banks that do allow you to open a business bank account without an EIN; experts believe that having one will be beneficial for your business in the long run.
5. Articles Of Incorporation
Finally, Articles Of Incorporation. This shows how your business is structured. Articles of incorporation also act like legal documents used to register your business with the state and federal government.
No matter what business structure you have, if you are the sole owner of the business, you need to provide the articles of incorporation.
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The Bottom Line
When you are starting a business, opening a business account is important. The faster, the better; experts suggest that you open a business account before receiving any business payment from customers.
By separating your business account and personal account, you can effectively manage your business finances, organize them better and use them for efficient tax filing.
In addition, you can separate your personal liabilities from business liabilities. This helps you secure your personal assets when your business accrues any losses.
So, what are you waiting for? If you are a business owner and still using your personal bank account for business, perhaps this is time to shift to a business bank account.