Your Small Business Checking Account

You started your small business, and now what? An important first step is to get a business checking account, even if you intend to operate as a sole proprietorship. Review our “Should I Incorporate?” article for an overview of the different formats you can choose for your business. For anything other than a sole proprietorship, you will certainly need one or more business checking accounts. Start with one account now; we’ll explain why you will want more than one as we go and in future articles. This post is on the simplistic side, but we’ll build on these ideas in future posts.

To open a checking account, you will need to request that account in your business name using forms the bank will give you. Corporations, for example, will have to pass a corporate resolution, but that just means having the principals sign a form provided by the bank, generated by them using information from corporate documents they will request from you. The process is streamlined and very simple; it just sounds more complicated than it is at first.

You will quickly see why the process is very streamlined; “business checking account” usually means “fees” to a banker’s ears. You will see fees for everything. Deposits above a certain monthly number or amount, deposits below a certain monthly number or amount, monthly fees regardless, online banking fees, debit card fees, minimum balance fees, cash fees, counting fees, branch fees, ATM fees, drive-up-teller fees and on and on, in addition to the normal overdraft charges and such which an individual account would experience. Banks are very imaginative about the sort of fees they want to impose, and, for similar services, may charge higher fees for businesses than for individuals, or lower fees, depending on how they feel that week. Before you open an account, ask to see the fee schedule for each type of account they offer. It really pays to shop around, and to decide in advance which services you care about and which services you don’t. This is one reason, among many, to consider having more than one business account. You may wish to make a large number of deposits, and one account may not have fees for that. Plus, you might want to write electronic checks also, and another account may be less expensive for this, where the first account might charge exorbitant fees for that privilege.

If you make cash sales on the road, such as at trade shows or the like, and your particular bank doesn’t have branches in target areas to allow you to conveniently make those deposits, it doesn’t hurt to have an account open with a regional bank which does. With the huge amount of banking consolidation which has occurred in the past few decades, this isn’t as big a deal as it once was, but it is still something to consider.

You will also need company checks. Back in the day, we would get nice, custom-printed checks in those giant, leatherette binders. Given the state of the economy in the past decade, we soon realized that our vendors were happy to get a check with money behind it; it could have been printed on an onion with a crayon and it wouldn’t matter. As one of our vendors puts it, “A good customer is one who pays his bills on time and his checks don’t bounce.” Your bank will have some simple options, pick an inexpensive one. You will probably wind up paying most of your bills online anyway.

Sole proprietor? Although not strictly necessary, you will want to open a business checking account also. The main reason for a sole proprietor to have a separate business checking account is to develop and maintain the self-discipline about which purchases are personal and which purchases are business-related, which is a Big Deal, tax-wise, as you will see. Fortunately, as an individual, you get a little extra flexibility in opening an account; an individual account may have better features and lower fees than the equivalent business account. You can also put a different name on the account such as your name on the first line, and “DBA Sally’s Fishing Lures” on the second, where DBA means “Doing Business As”. Most banks are familiar with this issue, although they may try to push you into a more expensive business account.

As always, this is just our ruminations, and isn’t to be construed as legal or financial advice. We’ll get into the accounting side of all this in a future article, and build on this admittedly simple foundation, but for now, make an informed decision about opening a business account, even if you’ve decided to operate as a sole proprietorship.

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