When Is The Best Time To Set Up Your Business Bank Account?
The best time to set up a business bank account is before you open your doors for business. However, if you failed to do so, it’s never too late. It’s extremely important to keep your business and personal finances separate. Nothing can be more confusing than mixing business with personal finances.
LLC’s and corporations are required to maintain a business account separate from their personal account and not to commingle business and personal funds. While it is not required for a sole proprietor to maintain a business account separate from their personal account, mixing business and personal funds in the same account can cause recordkeeping to become unnecessarily difficult and confusing.
If you don’t already have a business bank account, here are some of the things you should ask your bank before opening an account.
- What type of paperwork is required to open a business bank account?
- Are you required to have a DBA (fictitious name or assumed name statement) before you can open a business bank account?
- What are the bank’s monthly services charges?
- What is the minimum balance for business accounts?
- Are bank statements on paper, online, or both?
- Are bank statements prepared on the last day of each month or some other date during the month? Given a choice, I suggest you request month-end statements because it’s much easier to organize your records month by month.
- Does the bank include a photocopy of each check that clears the bank on each bank statement? If possible, request that the bank include a photocopy of each check with your monthly statement. This makes it easier to spot errors when reconciling your account.
Make sure you follow good banking practices. Here are some suggestions:
- Do not use your debit card to make personal purchases. If you don’t have enough money in your personal bank account to cover an expense(s) do one of two things
- Either write yourself a check from your business account and deposit the check into your personal bank account OR
- Electronically transfer funds from your business account to your personal account
- Avoid paying business bills using cash. Try to pay all bills using a check, debit card, credit card, or electronic payments. Doing so will make certain that all of your expenses are properly recorded and documented. You are less likely to forget what you purchased or even less likely to forget that you made a purchase. Capturing all of your expenses is the first step in making sure you don’t forget to deduct any of your business expenses.
- Deposit all of your income (cash and checks) into your business bank account. Your credit card merchant account should also be connected to your business bank account. Following these guidelines will help assure that you have a complete record of your earnings.
- Keep your bank statements for at least three years. You will need them to support your business transactions if you ever get audited by the IRS or your state. Three years is the normal statute of limitations for an income tax audit.
- Avoid writing checks payable to “cash” because it leaves you with no record of what you actually purchased.
Next step! Go open a business bank account if you don’t already have one!