One of the most important decisions you’ll make when starting a business is choosing the right accounts. As an entrepreneur, you’ll want to make sure you don’t mix your personal finances with your business money: If your cash isn’t kept separate, it could be hard to meet IRS recordkeeping requirements, and that could lead to tax penalties. Opening new accounts in your company’s name is typically a better practice.
Having separate bank accounts could also help limit your personal liability. Say someone were to sue your company; your business assets might be at risk, but your personal assets would likely be protected from legal action.
Here’s a look at three common types of accounts to consider for your company.
For entrepreneurs, opening a business checking account means you don’t have to ask customers to write checks to you personally. Some customers could view checks written out to individuals as unprofessional, and that could hurt sales. With a business account, checks are made out to the company name.
Many banks offer business checking accounts for a minimal fee. Some even offer free business checking, though your company may need to agree to limit deposits and withdrawals to a set number or agree to keep a certain minimum balance. At Northeast Community Credit Union, your account is free and there are no minimum balance requirements or transaction maximums. Also free are our mobile apps, home banking, and most other services.
You don’t have to put all your company’s cash in a checking account. It may make sense to place money you don’t need to spend right away into a business savings account, where it may earn a better rate of return.
A business savings account could also serve as an emergency fund to help pay for business operations if your company goes through a sales slump. And, as with personal accounts, your money would be protected with federal insurance up to $250,000 per depositor.
BUSINESS CREDIT CARD
Opening a credit card in your company’s name gives your business a chance to establish credit. When you first sign up, you may need to personally guarantee the debt because your company won’t have an established financial history. But your company will soon show a track record of payment as you put the card to use.
Opening bank accounts for your business can be an important step in establishing your company’s financials. By opening a separate checking account, savings account and credit card for your business, you’ll avoid the headaches that mingling personal and business money can create and you’ll make your company’s recordkeeping easier and more robust for the future.