When starting a new business, it’s important to establish good cash management practices. A business doesn’t need to be generating revenue to open a bank account. In fact, it should be one of the first things a business owner does, even before they start selling products or services.
Opening bank and credit accounts on behalf of the business allow owners to keep business funds separate from personal funds. These accounts also allow business owners to easily keep track of expenses, manage employee pay, convey finances to investors, receive and deposit payments, and budget more accurately.
A business checking account should be used only for the business, never for personal expenses. It is also the account where payments from customers or clients are deposited; funds from this account are then used to pay for business expenses.
Like the business checking account, the business credit card should be used exclusively to pay business expenses. Credit card accounts can help a business make large startup purchases and help establish a credit history for the business. Many business accounts also come with a line of credit that can be used in the event of an emergency or for purchases such as equipment. Ideally, the gross revenue from the business’s sales will be used to pay off the credit card balance at or close to the beginning of each credit card billing cycle.
A business’s bank accounts form the foundation of its accounting system. The checking and credit card account statements can be used to prepare financial statements and tax returns.
While some business owners open a business account at the same bank they use for their personal accounts, rates, fees, and options may vary among banks. It’s a good idea to shop around and consider factors such as introductory offers, interest rates, and fees for transactions, early terminations, and minimum account balances.
Opening an account requires the following documents and information: the business’s federal Employer Identification Number (EIN), organization documents (eg, articles of incorporation or organization), and business license. Some banks may require additional documents. For more information about bookkeeping and accounting, as well as other aspects of business operations for new startups, visit our BizVids Tutorials or register for a NaperLaunch Academy workshop. NaperLaunch coaches and SCORE mentors are also available to provide one-on-one virtual assistance.