Every business should have its own banking and credit card accounts, but it's important to understand that business checking and credit card accounts can differ greatly from personal accounts in both features and fees. Here are some tips for maximizing those accounts and putting them to work for your company.
Before you're able to open a business checking or credit card account as a sole proprietor, you must register your DBA (doing business as) with the appropriate government office. Once you do, it's wise to set up those accounts right away.
A small business owner may not have liability protection if he or she combines personal and business finances, which could mean creditors—including the Internal Revenue Service—can go after personal assets to collect on a debt.
Separate accounts also make it easier to track expenses and plan for tax time. A business that's structured as a corporation or a limited liability company (LLC) is required by law to have business finances that are separate from the owners' personal accounts.
Basic business checking benefits
Time is a premium for the small business owner. Fortunately, modern business checking accounts have a number of options that let you manage your money smartly while saving you time so you can stay focused on your company.
Here are some things to consider when shopping for a business checking account.
- Online/mobile money management: Online banking can help you stay current on your account balance from anywhere. New features like low-balance alerts and transaction notices can help avoid overdrafts or catch potentially fraudulent activity early on. Look for the ability to make mobile check deposits, too—this can save you trips to the bank or having to wait for a mailed check to show up in your balance.
- Multiple signers: Most business accounts allow more than one person to be authorized to write checks, make deposits and sign for debit card transactions, which can relieve some burden on the business owner.
- Merchant accounts: This allows businesses to accept debit and credit card sales using a merchant account (for a fee).
- Interest checking: Some business checking accounts can also earn interest. Compare rates and requirements to see if you might earn a little extra cash with an interest-bearing account.
Minimizing checking account fees
Because business checking accounts often involve larger, more frequent deposits than individual accounts, the fees charged often differ from those for personal accounts. For example, online banking is usually free for individuals but may result in a fee on some business checking accounts. It’s important to compare fees closely to find the right type of account that meets your specific business needs.
- Activity limits: If your business makes a high number or dollar amount of transactions, closely compare the monthly activity limits on any potential checking accounts to find one that works best for you.
- Maintenance fees: Some accounts require a minimum monthly balance to avoid a monthly maintenance fee. If your business maintains a steady cash flow and doesn’t dip below a certain predictable level, a checking account with a minimum balance requirement will probably save you money. If you do go this route, though, sign up for online alerts to be notified if your balance is in danger of dropping too low.
- Paperless savings: Going completely digital can pay off. If you plan on making deposits only via a bank’s mobile app or at an ATM and are comfortable with paperless statements via email, some accounts will forego the monthly maintenance fee.
- Free ACH transfers: Will you be transferring money between accounts frequently? If so, look for a bank that allows free ACH transfers.
- Bundled accounts: Bundling multiple accounts can help avoid certain fees, too. Linking a business checking account to a savings account, IRA or merchant services account often eliminates the monthly maintenance fee.
Getting the full benefits of small business credit cards
Credit cards come many forms, each with a different set of perks that may appeal to business owners. It's important to consider which would be the most beneficial to your business.
- No annual fee: Plenty of credit cards offer no annual fee, so it’s more important to examine the other benefits and costs of any credit card you consider.
- Payment habits: Take stock of your credit card payment habits. If you regularly pay off balances every month, a card with more perks but a higher annual interest rate could well be worth it. On the other hand, if you tend to carry a balance from month to month, a card with a higher revolving limit but a lower interest rate will probably save you more money in the long run.
- Travel perks: Do you travel a lot? If so, compare credit cards that tie your purchases to air miles or travel discounts. Note that many airline-affiliated credit cards charge an annual fee, so it’s important to weigh that cost against the travel benefits you gain.
- Business rewards: Do you buy office supplies every day, pay for fuel often or take a lot of clients to lunch? If so, you may reap more benefits from a card that offers rewards or cash back for these types of purchases.
- Multiple cards: Do you plan on issuing cards to employees for purchases? If so, look for a business credit card account that offers additional cards at no extra cost.
- Money management tools: Pay attention to the details. For example: Online management tools or an end-of-year summary of charges can be handy for day-to-day tracking of credit card purchases and itemizing expenses and deductions during tax time.
- Security measures: Check for credit safeguards. Signing up for fraud alerts can be a smart way to notice a compromised account early and avoid a major disruption in the financial activities of your business.
Consider your future financial needs
When choosing a small business checking account or credit card, don't forget to consider services your company may need in the future. Will you be looking for an expansion loan? Might you need help handling payroll? Look for banks that understand your industry and can meet those future needs, and factor those considerations into your checking and credit card account decisions.
Even with widespread access to mobile and online banking, it's still important for small business owners to develop a relationship with a bank. As your business grows, its needs will change. A business owner may return to the bank in 1, 2 or 5 years to add new services or seek financing. That's why it's critically important to fully research all the features and services of your checking and credit card accounts—to make sure you get everything your growing business needs out of both.