I was recently setting up a new business and it occurred to me that not everyone knows some of the banking nuances for small businesses. I’m hoping that going over some of the considerations here will help some of you as you set up your own companies and your own bank account. It’s not hard, but it’s s bit different from shopping for and setting up a personal account.
Shopping for a Bank Account
The first thing you will want to do is to shop for a good business account. These can be very expensive. I have several and those are all free. You may not be able to get that but hopefully with some careful shopping, you can keep your costs down. Some of the costs are outrageous and with careful consideration and research you can avoid those costs. Here are some of the things that you need to consider:
- Accessibility – Consider what your needs are. Do you need to deposit in person? Do you need to deposit change? How many checks do you expect to need? Will you need a debit card? Are you handling credit card transactions? How much money will you expect to have in there at any given time? Will you need to go there in person? As we discuss other considerations, these answers will be very important. Write these answers down and consider what you expect and hope your business to become. Maybe do a five year projection. Moving your bank account later on will be a pain. Here are some things I’d consider –
Debit Card – A debit card can really help if you don’t have a business credit card. It’s far easier (and better legally) for as many transactions as possible to be isolated just to your business accounts, which means it’s better to pay from a business account than a personal account when you can. A debit card makes this easier.
No Charge for a Electronic Transfer – More and more clients are paying electronically. You don’t want to pay extra for that.
Online Access – Online access can really help you keep things together. Also, if you get big enough to need a bookkeeper, being able to give them access eventually can save you hours.
Online Bill Pay– Many banks are offering bill paying services. You should consider this and you shouldn’t pay extra for it. Using online bill payment let’s you schedule payments and it saves you on checks. Business checks can get very expensive.
Access – Do you have partners? Where do they live? You may need a bank that offers more locations depending on your business or partners.
Credit Cards – If you are using credit cards, this can change the account you need. Make sure your credit card processor will use the account you’re considering. Also, some accounts charge by transactions and the regular deposits of credit card charges can increase your transactions.
- Research – Start your shopping online. Look at local banks. If you don’t need in-person deposits, then look online as well. Read reviews of their services. You can often find this information through Google by searching terms like “[bank name] business checking reviews”. You can look at consumer reviews as well but many banks market to these segments separately.
- Get Referrals – Do you know any small business owners in your area? What do they use? Do they like them? What’s their favorite part of doing business there? What’s their least favorite part? These can be helpful but remember that every business is different and what works for a friend may not work for you.
- Check Your Bank – Your own bank, unless you hate them or they’re a credit union where you often can’t get a business account, can be a good place to start. This, combined with the number of transactions my accounts allow, is why I currently don’t pay for business checking. (If I grow enough, I’ll cross the threshold of transactions where I’ll have to pay, but that’s a good problem.) Often your bank will give you consideration because you already have money there. They’ll also often give you consideration for all of your business.
- Pricing – For each account you are considering, carefully consider all involved charges. Call each bank you are considering and ask about any and all charges. Are there fixed fees? What else incurs a charge? Is there a per transaction fee? Do they charge for using a teller? The range of fees is amazing. If the bank is local, consider making an appointment, dressing professionally and actually going and meeting with a banker. This can make them want your business more. Also, often the banker gets some sort of credit for bringing in more business. When you finally choose a bank, if they helped you, go back to them to open the account and add them to the business contacts you need to maintain a relationship with. They may be helpful one day if you need help. Often banks will offer different packages depending on your needs. That’s another reason it’s helpful to know what you need in advance.
- Minimum Balance – Often you can get cheaper, or free, which is nice, rates by keeping a minimum balance in your account. There are a few things to think about before you commit to this. The most basic being whether you have that money available to just sit there. If you do have it, what else could you do with it? You don’t want to tie up money that could be earning you more money elsewhere. Many of us are scrappy, bootstrapped startups and tying up $1,000 or more permanently isn’t doable. Lastly, be clear on how that’s calculated. Is it an average or a minimum at all times? That can make a big difference.
Picking Your Account
There’s no science to picking the right account. You may be considering from two or from twenty. Here is a way you can pick your best option:
- Make a List – List all of the options, their costs, and which of your needs they meet.
- Eliminate Bad Options – Remove the options that don’t meet your needs. If none do, then reexamine your needs and go back to shopping.
- Rank the Remaining – List the remaining list by cost. Consider removing the most expensive unless they have options that make the cost worth it. For a small business, it seems silly to spend a bunch of money for checking unless you really need something that they have.
- Pick Your Option – I’d personally go with the cheapest option that met my needs. Your choice may be different.
Using these, select your account. If it’s a tough decision, keep going through iterations of this to whittle down the options. Perhaps you should meet with a banker or consider calling customer service. If the money doesn’t determine it, service might help. For many businesses, your bank and its services are a key strategic business partner (and they do, after all have all your money.)
Opening the Account
Now that you’ve made your choice it’s time to open your account. You’ll need to get some paperwork together. If you can, consider making an appointment and going to a branch (ideally the one you’re most likely to use) to open it. Start building that relationship now.
You should call your chosen bank and ask what they need. Here’s what you should expect at a minimum:
- Incorporation Paperwork – this is the paperwork that you usually get from your state for the formation of your business (remember that you won’t have this for a sole proprietorship)
Any town or county paperwork – this varies by area but often you have to also get some sort of license from the county or town
- EIN Letter – When you file with the IRS for your tax number, you will be able to download a letter with your EIN. Bring that with you or you can’t open your account.
- Identification – You may need to bring an official government ID or two, usually at least one with a picture.
- Checks – You’ll need to fund the account. Bring checks with you to do that. Check with the bank. If your business account is a different bank than your personal bank, you may need time for the checks to clear. They will likely accept them but don’t expect access to the money right away.
When you go there, give a brief explanation of your business, what you do and any special needs you may have. Examples here include taking lots of change, credit card transactions, need for a trust account, etc. For most drone based businesses, you won’t have any of this. They do this all the time. By explaining the business, they may identify needs that you didn’t. They can explain with you how to interact with the bank and services they have.
Don’t let them sell you more than you planned to buy without doing the research. For example, almost every bank will have a credit card processing product but you don’t know sitting there in the office how the price compares, will it interface with your website, fees, etc. Ask them for literature and tell them that you will follow up with them if you’re interested.
Always ask for their card whether you plan to buy or not. I’ll usually do this buy saying something like “I assume it benefits you personally if I come back to you for that?” The answer is almost always yes. Then make sure to ask for a card so that you can follow up with them. (Do this even if you don’t plan to use them. If service was bad now you know not to go back to them but have given them the indication that you will which may lead to better service). I try to take care of those contacts that help me. Send them business when you can and do what you can to make sure that they know. It’s how good business works.
You will also likely need all the partners to sign a signature card. If you can’t all make it (if there are others), ask how to handle that when you make the appointment. Sometimes the other partners can go in separately or can send them something electronic or go to another branch. Make sure you have the paperwork identifying all the partners.
Lastly, figure out who will be allowed to sign checks. On a business account, often you can have multiple signers. For example, since I travel a lot, my wife is a signer on my business accounts even when she isn’t part of the business. In my case, she’s a bookkeeper by trade but if and when I need something while traveling, she can sign for me. Of course, it goes without saying, that you have to be able to trust that person.
Before you’re done, make sure you do a few things
- Fees – Know how things like ATM fees and such work.
- Online Banking – Make sure you know how to sign up
- Contact Information – Get the contact information of the person you’ve been working with. Also, know how to get help off hours. One bank error can quickly bring your business to its knees.
There you have it. Congratulations. Now your business has a checking account. It’s getting real. Try to run all your business expenses through it. Do not mix personal and business funds. That can cause you no end of problems.