Small-Business Checking Accounts
Why small-business owners should have at least one
Whether you're just starting out or you've successfully established your company in the business world, as a small-business owner it's important that you know the fundamentals of business banking. According to small-business expert Darrell Zahorsky, "One of the basics of small business banking 101 is to set up a business bank account. This fundamental business function is often lost with new and part-time business co-mingling funds."
Especially in today's economy, venturing into the world of business can be risky, and it's important to prevent as many problems in the process as possible. Separating your personal bank account from your business bank account is a great first step. Here are some reasons why.
You want the government to believe you have a business. The government stipulates that only businesses can deduct business expenses come tax time. If your business looks more like a hobby, operating with a personal bank account will make it even more difficult to convince the IRS otherwise.
You'll save yourself stress during tax time. Personal and business transactions have to be separated when it comes time to declare income and expenses. This will be tedious and time consuming if you're using only one account for both.
Your clients will take your business seriously. Having customers write a check to your personal account as opposed to your business account might make them think you're not serious about your company. Even if your business is part time, if you treat it seriously, your clients will too.
Once you've established that a business checking account is the right decision for your company, there are some questions to ask yourself and your banking institution before you open one. As Geoff Williams of SmallBusiness.AOL.com says, "Finding the right small business checking account ... can be a little like asking someone to go steady. After all, while you and your checking account can break up later, it isn't easy — all those automatic deposits and withdrawals to cancel, and the shifting of funds from one account to another — so obviously you want to get it right." Here are some questions to ask to help match your company to the ideal account.
- Does the institution offer free business checking accounts?
- What types of fees come with this business checking account?
- Is the institution insured?
- Does the account offer overdraft protection?
- What other services, if any, does the institution offer in conjunction with a business checking account?
Depending on the size of your company, you may be compelled to open multiple checking accounts for the different areas of your business, such as operating expenses, payroll, research and special projects. Multiple accounts will require more time and attention to detail, especially when it comes time to do your taxes, and will create more opportunities for error and fraud.