At a minimum, business owners need a dedicated business checking account for fund deposits and to manage your day-to-day spending. A bank may also offer other products, like credit cards, business loans, or merchant services.
Here are things to consider if you want to choose an initial business bank or change the one you’re currently with:
Reasons to explore a new business bank
Are you happy with the service you’re getting from your bank? If it’s been a while since you’ve explored options, you might be surprised at the variety of services offered.
- Easier tax preparation
When your income and expenses flow through a bank account, you, your accountant, or your bookkeeper can link your transactions with tax preparation software. This can save lots of time and effort. Additionally, if you face an IRS audit, you’ll have organized records.
- Automated bookkeeping
Bookkeeping software can help you manage bill paying, accounting, budgeting, and invoicing, simplifying your finances and automating most bookkeeping tasks.
- Protection from business debt liability
One advantage of establishing your business as a corporation or a limited liability company (LLC) is to protect your personal assets. If you mix your business and personal assets by not keeping a separate business bank account, then your liability protection is essentially gone. This means you could be found to be personally liable for business debts incurred.
- Show the IRS that your business isn’t a hobby
To legitimize your business, the IRS must be able to determine that you are trying to become profitable. One way to do this is to keep all business income and expenses separate by having a business bank account.
- Establish business credit
A strong business credit history is key if you’re seeking funding. By having a business account at a local bank, you can establish a relationship for credit purposes. High business credit scores are key if you want to get the best rates for a loan. Read more about how to establish business credit in this SmartBiz® Loans blog post: Understanding Business Credit Scores.
- Help applying for a business loan or government support
Applying for a bank term loan or a government-backed SBA loan can be complex. Working with the right bank can help you keep documents in order. Application requirements might include a cash flow statement, a profit and loss statement and your three most recent business bank account statements.
- Your business is growing
Business growth is one reason why you should consider changing your business bank accounts. Once you decide that your current bank account does not meet your businesses needs anymore, it's time to start looking for other options.
Before you look for a new business bank
Don’t jump into the process. Consider the following details when you’re researching banks:
- Examine your banking history
If you have an established business, review the last 6-12 months of your financial history. If your business is new, look at 6-12 months of financial projections. This can help determine the amount of surplus cash you need per month and your outside capital needs.