When is it time to open a small business bank account?

This article was paid for by Mercury.

If you're thinking of starting a small business — or you have one already — one of the most important things you need to do is manage your money. 

From managing capital to making payments or handling payroll, you'll need a dedicated spot for all of your business income and expenses. A dedicated business bank account can help.

A small business bank account is a specialized bank account specifically for your business. It separates your business finances from your personal ones and is what you'll use for all of your small business's transactions. 

Many business accounts offer online banking and other features — like payroll management, business loans, and merchant services — specifically for businesses.

If you're already receiving or plan to receive any payments as a solopreneur or small business owner, then it's the right time to open a business bank account. This account is where you'll deposit all of your business income and pay for all of your business expenses.

Ideally, you'll open your dedicated bank account as one of your first steps when setting up your new business. But if you've already been running your business and accepting payments, rest assured that it's not too late to open an account and separate your finances as you move forward.

One thing to keep in mind here: If you're in the process of establishing a business entity, wait until you've completed that process. You'll need your business name and potentially your business registration paperwork when you open your bank account.

Do you absolutely need a small business bank account? Not necessarily. If you're running your business as a sole proprietor (meaning you haven't established a formal business entity), a separate bank account is more of a strong recommendation than a firm requirement. 

But even so, if you're receiving any business income, it's generally a smart idea to have a dedicated bank account specifically for your small business — even if you aren't technically required to do so. Setting up a separate bank account helps you:

• Separate your personal and business finances, which is especially important if you have an established business entity like an LLC
• Simplify your bookkeeping, financial record-keeping, and tax preparation
• Get a better understanding of your income, expenses, and cash flow
• Demonstrate professionalism and present your business as more legitimate
• Establish and build business credit
• Accept credit card payments from customers, which isn't easy to do with most personal bank accounts
• Qualify for and receive small business loans and grants

You may want to consider a bank account that automates accounting, like Mercury*, which can make your day-to-day much more efficient.

When you decide to open a business bank account, you'll have your choice of opening a business checking or a business savings account. These types of accounts serve distinct purposes, similar to your personal checking and savings accounts.

Your checking account is what you'll use for day-to-day transactions, like receiving payments from your customers or running payroll for your employees.

Your savings account is where you'll build a financial buffer for your business. Business savings accounts generally offer a higher interest rate than checking accounts, making them a great spot for growing your funds over a longer period of time.

In most cases, you'll need a business checking account to handle your daily business activities. But it's smart to also open a savings account so you have a specific spot where you can set money aside.

If you're picturing long lines at the bank and piles of paperwork, you'll be pleasantly surprised. These days, opening a separate bank account for your business is pretty straightforward — and many financial institutions allow you to do so online.

Start by picking your bank. You can check if the institution you use for your personal banking also offers business banking, evaluate online-only business bank accounts, or open a business checking account with a different bank or credit union than the one you currently use. As you consider your options, pay attention to service fees or any requirements for monthly transactions or minimum balances.

To open your account, you'll need to complete a simple application and provide your:

• Social Security Number or Employer Identification Number (EIN)
• Personal identification (like a valid driver's license)
• Business registration paperwork, if applicable (such as the articles of incorporation you filed for your LLC)

You might also need proof of your address or other paperwork, and some banks also require a small initial deposit. Check with your chosen bank to ensure you have everything you need to open an account.

Opening a small business bank account separates your personal finances from your business ones. But it also provides a clear place to manage your money, make smarter decisions, and set yourself up to achieve every business owner's ultimate goal: a long, successful future.

* Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.

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