There isn’t a small business on earth that could survive without one or more bank accounts, but many new entrepreneurs don’t really know what to look for. Should they open a checking account, a savings account, should it be registered to the business, or if the entity is a sole proprietorship, can the bank account be a personal account?
These are all questions every new small business typically asks, and if they don’t find the right answer, it’s easy to open the wrong type of account. If you are looking for a business bank account, here are five mistakes you should always avoid.
1. Not Keeping a Separate Business Account
Although mentioned above, many small businesses try to get by with their personal bank accounts. Unfortunately, this is a huge mistake on a number of levels, but most importantly, it can be a nightmare at tax time. Do you know how hard it is and how time-consuming it will be to separate personal from business expenses if you should get audited by the IRS? The penalties for what they consider to be tax avoidance can be hefty, so always, always, always, keep your personal and business account separate.
2. Not Having the Proper Information on Hand
When you start a business, always register with your state and the federal government. You will get an EIN (Employer Identification Number) much like your personal social security number, but it is just formatted differently with the first two numbers being the ‘campus’ overseeing your EIN. For a list of those campuses, you can refer to the IRS website, where they explain how EINs are assigned.
3. Not Setting Authorized Signers on the Account
Sometimes, when you first start out as a small business, you have no employees, but what would happen if you were suddenly indisposed for a few days or weeks due to illness? How could your creditors be paid? Even small mom and pop establishments should consider having an alternate signer, a co-signer on the account so that business can continue uninterrupted in your absence.
4. Choosing the Wrong Bank or Type of Account
Some banks are simply better than others when it comes to setting up small business bank accounts. If you are going to work with a bank, you might want to find one that is committed to helping small businesses grow. Usually, you have a choice of accounts based on such things as minimum balance, the number of monthly transactions, and fees associated with your account. Be realistic in how many transactions you believe you will have during any given month, and also, set a realistic minimum balance because you will incur fees if you fall under that amount, even for a day.
5. Not Keeping an Eye on Monthly Balances
This is why it is vital to keep an eye on your monthly balances. However, not maintaining a minimum balance is not the only reason to follow a running balance from month to month. You might just discover that you have better options in business bank accounts if your balances exceed or fall below what you had projected when opening your account. The savings you could incur by changing account types might be significant, so do remember to keep track of your balances from month to month.
Finances are integral to business success and so your bank accounts must be chosen and monitored carefully. Choose the right bank and the right bank accounts, so that you can focus on what it is you do best – making money to put in those accounts!
