The need for a business savings account will depend on the structure or your business. Find out if you really need a business savings account and how to start one.
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You most likely have a personal savings and/or checking account, but what is a business savings account? Do you need one? How do you find the right account for you?
Starting a business savings account and developing cash reserves are important parts of your business finances.
Read on to learn more!
What Is A Business Savings Account?
A savings account is a separate banking account that acts as a place to hold and store cash for your small business. A business savings account is incredibly similar to a personal savings account with a few key (and beneficial) differences.
No Need To Keep Detailed Records Of Purchases
The best part about moving from using your personal banking account to a savings business account for all business-related expenses is that you no longer have to keep detailed records of what is a personal cost vs. business cost. This will make it easier in the long run for you in terms of complying with tax law, paying your employees, and tracking business expenses.
Greater Personal Legal Protection
If you have decided to structure your business as a limited liability corporation (LLC), partnership, or corporation, you are legally required to separate your personal and business finances. This is because your business exists as a completely separate legal entity.
Besides being a legal requirement, it’s just a good idea to keep your business and personal finances. This is because, in the unfortunate event of a bankruptcy or lawsuit, your personal assets are protected from financial liability. If you do not separate them, you could stand to lose important personal assets in order to cover the costs your business cannot.
On the flip side, however, if your business is a sole proprietorship meaning you are a freelancer, self-employed, or an independent contractor, you can continue using your personal banking account as it will likely be easier for you in the long run. You are your business, and your business is you, so there is no danger in keeping them together.
Easier Access For Other Employees
If you plan on, or already have, hiring more employees to help you with your business, they’re most likely going to need access to business funds at some point. You don’t want to give them access to your personal savings account, so a business savings account is a good way to allow them to use company money without jeopardizing your own.
Some business savings accounts will issue multiple employee credit/debit cards, which saves you from having to complete reimbursements, keep track of receipts, or have a complicated system used to track employee expenses.
Helps Build Your Business Credit Score
Continuing to use your personal account for business expenses robs you of the chance to start building or improving your business’s credit rating.
Without a business credit history, it will be difficult for you to apply for funding in the future, including (but not limited to) loans, lines of credit, and even business credit cards. You can even find a bank that offers business savings accounts and access to Small Business Administration Loans, which you may automatically qualify for with a strong credit history.
Can Act As Your Payment Processor
Some business savings accounts include merchant services (not included in personal banking accounts) which will allow you to accept debit/credit card payments.
While you don’t need to rely on your business banking account provider for payment processing, it can be an easy option for a small business just starting out and not looking to spend a lot of money to start accepting card payments. Many of the best credit card processing companies require business banking accounts.
When You Need A Business Savings Account
If you’re asking if you need a business savings account, chances are, you do!
If your business is incorporated in any way, you legally have to have your personal and business finances separate from each other.
If you’re currently using your personal savings or checking account as a savings account for your business, it’s time to start researching and deciding what institution is going to be best for you.
When You Don’t Need A Business Savings Account
If your business isn’t incorporated, if you’re a freelancer, self-employed, independent contractor, or a sole proprietor, you don’t need to make a business savings account.
You can continue using your personal banking accounts for your business expenses, but keep careful records so you can write off those expenses come tax season.
If you’re a sole proprietor and you still want to make a business bank account, we have an article that can help you find the perfect one.
What To Look For In A Business Savings Account
What works best for your small business is going to be unique to your situation. Even businesses in the same industry and location will have different needs.
Some basics to consider include:
- Access to funds
- Customer service options
- Annual/monthly fees
- The Annual Percentage Yield (APY)
For some small businesses, the perfect business savings account is going to make it easy to access your business funds, have no fees, and will be scalable to grow with your business’s changing needs.
Check out our article to learn about our favorite business bank accounts.
How To Find & Get The Right Business Savings Account
One of the things you will need to choose is the type of institution you want to open your account with. Do you want to go with a bank or a credit union? Are there any other savings accounts available? (For example, HR and payroll vendor Gusto provides its businesses with a high-yield savings account — check and see if your payroll provider offers something similar.) Once you decide between a bank or a credit union, you will need to gather some documents before you set up your account.
Here’s a checklist of what is needed to open a business savings account:
- Employer Identification Number (EIN)
- Business Formation, Partnership, or Incorporation Documentation
- Business License
- Government-Issued Identification
Read our full article on the documents needed to open a business bank account to learn more about your next steps.
Now that you know more about business savings accounts, it’s time to find and make a business bank account!
Business Savings Account FAQs
Why do I need a business savings account?
You need a business savings account to keep your personal and business finances separate. If your business is incorporated in any way, you legally have to have one.
Where can I get a business savings account?
You can get a business savings account from a traditional brick-and-mortar bank or an online banking service.
What do I need to open a business savings account?
To open a business savings account, you need your business name and address, personal information, business tax ID number (EIN or Social Security number), business license, and Doing Business As (DBA) documentation.
What are the best banks for business savings accounts?
The best banks for business savings accounts are ones that require no fees, give you easy account access, and offer opportunities to tap the credit you need to keep your business growing.
How much should a small business have in its savings account?
A small business should aim to save at least 10% of your monthly profits, 3-6 months of expenses, and/or enough cash or liquid assets on hand to cover several months’ worth of expenses in case of emergency.