You’re starting your own business and will need to start making payments to vendors, utilities, and maybe even employees soon. You know the next step is to open a business checking account, but as with every aspect of starting a business, you may have questions about the best way to do so: What exactly do I need to open a business bank account?, What kind of bank account would work best for my business?, and Which bank should I choose?
As a dedicated, local bank that offers several business checking account options for businesses in Illinois, Flanagan State Bank is here to answer these questions and more. In this post, we’ll discuss reasons for opening an account, details about how to open one, as well as tips for managing your account to simplify accounting and maintain your business’s financial health. But first, let’s answer one of the most commonly asked questions we receive.
Why Can’t I Use My Personal Account?
When you start a business, it’s important to keep your personal and business finances separate. The simplest way to do this is by opening a designated business checking account. So, why is this so important? Here are some things a business account can do:
Professionalize your business. When customers can write out checks to your business, and you can pay for expenses with an account in your business’s name, you will appear more professional to both the public and your partners.
Provide business-specific features. Business checking accounts typically offer features that are not available with personal checking accounts. These can include making and accepting ACH (Automatic Clearing House) payments directly from and into your account, accepting credit card payments, and integrating your accounts with programs like QuickBooks.
Keep your personal assets safe. If you run into legal or financial trouble with your business, your personal assets may be at risk if you’ve been using a personal account for business transactions. While, as the Small Business Administration explains, choosing the right business structure can also shield you from liability, creating strict barriers between personal and business finances can help ensure that business troubles don’t infiltrate your personal financial well-being.
Make accounting easier. Having a business checking account also makes it easier to keep track of business expenses and revenue, which can be useful come tax season and can even help you build your business’s credit score for when you need to take out a business loan or apply for credit.
As a bank that offers business checking accounts in Illinois, we understand the importance of keeping your personal and business finances separate. That’s why we offer a range of business checking accounts to fit the needs of different types and sizes of businesses, from basic accounts with low fees to accounts with more advanced features. Let’s take a closer look at business checking accounts to learn more.
What is Business Checking?
Your main business checking account will likely be the hub of your business’s financial activities. It’s typically used for handling day-to-day transactions, from paying bills and employees to receiving payments from customers. With a business checking account, you can make payments via checks, a debit card, and electronic funds transfers (like wire transfers and ACH), accept cash, check, and electronic payments, and make cash withdrawals. They are often used in conjunction with a business savings account (we’ll explore these accounts more in a future blog!).
While all business checking accounts serve the same basic function (managing incoming and outgoing funds), there are a variety of different kinds of accounts to meet specific business needs. These can vary from the number of allowable transactions each month to minimum opening deposits and fees based on balances. The account that meets your needs today may be insufficient tomorrow, in which case you may choose to migrate to a new type of account when the time comes.
Some common Business Checking Accounts include:
Simple Checking Accounts: Ideal for smaller businesses and nonprofits, these basic accounts often have lower opening deposit and balance requirements and offer a limited number of free transactions each month.
Traditional Business Checking Accounts: As your business grows, these more robust accounts may make more sense for you. They typically have a higher minimum balance requirement and sometimes are necessary for certain treasury management services (like ACH transfers) that more basic accounts can’t handle. While there are no free transactions, they usually come with an ‘earnings credit’ based on your balance to offset these fees.
Business Checking Accounts with Interest: When your accounts start to carry larger balances, you may choose to use an account that bears interest. Instead of an earnings credit, you will receive interest on your account—and many offer a set number of free transactions, as well.
Questions to Ask When Choosing an Account
While working with an experienced banker may be the best way to determine which account can best suit your business’s needs, you can narrow down your choices by asking a few basic questions:
How accessible is this account? Account accessibility has to do with how easy it is to access your account and its funds—and how easy it is to access your banking partner. Local banks can provide greater accessibility to assistance as you set up your account, navigate day-to-day challenges, or make changes to your account as your needs grow. Additionally, look for online or mobile banking and remote deposit capabilities; these can be essential for keeping your business nimble and simplifying financial management tasks.
What are the associated fees? Very few business bank accounts have no fees at all, and charges can range from ordering checks to processing transactions, monthly fees, and fees for added-on services. Consider your expectations for account usage and try to locate an account that balances your needs with associated costs.
What is the minimum balance requirement? This may be the most important question for new business owners as you are still building your business income and cash reserves. Keep in mind that as your business grows, you can always scale up to an account with more features and higher balance requirements.
How many transactions can I have each month? Some accounts limit the number of transactions—or free transactions—each month. Again, consider your expectations for using your account and choose an account with sufficient transaction allowances.
What features does the account offer? At some banks, the most basic accounts offer very few features or have fees to access common business banking tools. And oftentimes, the more features your account has, the more it will cost. While it may make sense to save money by skipping features that you don’t need, some, like remote deposit and ACH processing, can save you significant time and effort, paying for themselves. At Flanagan State Bank, all of our business checking accounts come with free common features, including debit cards, online and mobile banking, and bill pay.
As always, speaking to a bank representative at your local branch can help you weigh your options and learn more about features, requirements, and charges to find the best business bank account for your needs.
Do I need an EIN to open a business bank account?
If you’re starting a business, you may have heard of an EIN or Employer Identification Number. An EIN is a unique nine-digit number assigned by the IRS to identify your business for tax purposes. With the exception of sole proprietorships with no employees, EINs are typically needed if you plan to open a business checking account. This is because banks need to verify the identity and tax status of the business, and an EIN is the simplest way to do so.
In addition to opening a business bank account, you’ll also need an EIN to hire employees, file some business tax returns, or get local business licenses or permits.
The good news is that getting an EIN is a relatively simple process—you can apply for yours online through the IRS website or fill out a form and mail it in. You’ll need to provide basic information about your business, such as its legal name and business structure (LLC, Sole Proprietorship, Corporation, etc.), as well as your personal information as the business owner.
What are the additional requirements for opening a business bank account?
In addition to providing your EIN, you may be required to bring in other documents to verify the legal status of your business and your identity. This may include:
- Your business’s formation documents
- Ownership agreements
- Business license and permits
- State-issued personal identification for all parties affiliated with the account, including authorized signers
- Proof of workers’ compensation insurance if you have employees
You’ll also need to have funds to open your account, and the amount will depend on your desired account’s opening deposit requirements and your initial payment needs. Your funds may come from your personal resources or existing business funds, but be sure to document their source and speak to an accountant beforehand if you have any questions.
Business Checking Account Tips
Once you’ve opened a business checking account, it’s important to actively manage it to ensure your business finances stay in good shape. Here are a few steps you can take to save money, avoid accounting headaches, and help you make smart financial choices for your business:
Regularly reconcile your account: Regularly reconcile your account by comparing your bank statement with your own accounting records to ensure there are no discrepancies. Be sure to keep your paper or digital receipts and invoices related to your business expenses to check against your records as well. Staying organized will also make tax season much easier.
Look for ways to minimize fees: When you receive your statements, be sure to review the fees associated with your account to see how much you are paying. If they’re substantial, strategize to come up with ways to reduce them. You may need to consider moving to a new account that better fits your needs—for instance, as we mentioned above, some accounts, like our Traditional Business Checking Account, offer fee waivers or discounts for certain activities, such as maintaining a minimum balance or using online banking.
Use online and mobile banking: Take advantage of online and mobile banking services, which can help you easily manage your account, pay bills, and deposit checks. With your most recent transaction information at your fingertips, anytime, anyplace, you’ll be better able to keep track of your balances and spending habits.
Consider overdraft protection: Especially as your business is in its early stages or your checking account experiences large swings in volume, opting into overdraft protection can help you avoid occasional costly overdraft fees. When you use overdraft protection, funds from a linked account (usually a savings account) are automatically transferred to cover negative balances.
Review your account regularly: Make it a habit to review your account regularly to ensure there are no unauthorized transactions or errors. This can help you catch any issues early on and prevent fraud—something important to look out for as a small business owner.
Build your credit: Use your business checking account’s automatic payment features to improve your business’s credit score by making timely payments to your vendors, landlord, and utility companies and managing your account responsibly. Effectively managing your debts is key to building credit, essential if you want to qualify for business loans or additional credit in the future.
Use tools to manage your cash flow: Many small businesses experience an ebb and flow of funds over the course of the year, whether you have high and low seasons or manage major projects that have large upfront costs before payments are received. There are tools that you can use to help smooth your income and expenses, including commercial loans and business lines of credit, as well as services like our Business Account Manager.
Benefits of Local Business Banking
While you might assume that larger national banks have the most advanced online and mobile features, you don’t need to forego the benefits of choosing a local bank for your Illinois business banking needs. At Flanagan State Bank, we not only offer competitive digital banking options and tools for our small business customers, we also offer the dedication, accessibility, and local insights that only a community bank can.
We’re a local business—just like you!—and we’re invested in the success of all our small business customers. Reach out to us today or visit one of our branches in Flanagan, El Paso, Gridley, Benson, Le Roy, Pontiac, or Bloomington today to see how we can serve your business.
