Why Business Bank Accounts Are Important For Self-Employed
Small businesses form the backbone of the American economy. According to the Small Business Administration, the United States has 31.7 million small businesses, employing 47.1% of the nation’s employees. 99.9% of the country’s businesses are small businesses. In 2020, they created a net 1.6 million jobs and are far more diverse than their larger peers, with 5.2 self-employed minorities in the United States. This vital sector of the economy is often challenged by a lack of understanding about the importance of having business bank accounts. Yet, it is vita;l for self-employed people to have them. A business bank account is an important element of helping your business grow. Here’s why.
The Principle of Limited Liability
One of the most important inventions of the modern era was the establishment of the principle of limited liability. What this means is that the liabilities of a business can be walled off from the liabilities of its owners, given certain conditions. When those conditions are fulfilled, the owners of the business cannot be held liable for the business’ liabilities. The corporate veil protects a business’ owners. This principle exists so that founders and their shareholders can take prudent risks to grow shareholder value, without fearing that failure will ruin them. Think about all those businesses that run at a loss for years on end while they are still growing. Even Amazon ran at a loss in the early period of its lifecycle. Jeff Bezos and his backers would not have been able to do that without the protection of the principle of limited liability.
To establish that a business truly is distinct from its owners, a business’ operations, assets, liabilities, and financial affairs must all occur under the name of that business, rather than the owners. If you have a business, but its funds are banked in your personal bank account, then the corporate veil can be pierced and a decent lawyer can argue that the business and its owners are in effect the same entity and not distinct.
Keep an Eye on Tax Deductions
Mixing up your personal and business finances is a messy way of doing things. With a business bank account, you can keep an eye on tax deductions and tax-deductible items, such as charitable donations. Payments to suppliers, business equipment, and other things that you use in the operation of your business.
Build a Credit Profile
If you have a business bank account, you can build up a financial history and credit profile that you can use to get loans for the business, or to rent property, make certain payments, and do other things. You also need a business bank account just to get a business credit card. Every business needs some form of debt financing, within responsible limits. It is better to have your business directly assume debt than to assume that debt in your own name. If your business closes, then its assets can be seized to repay creditors. But if you default on loans, you will lose your personal property.
Business Bank Accounts Give You Access to Advanced Solutions
Your business, if successful, will grow and as it does so, it will need increasingly sophisticated banking solutions, such as merchant services and point of sale (POS) systems, cash flow management, data analytics, and revenue projections. These solutions can have a material impact on the performance of your business and are solutions that a personal bank account will not give you access to.
Finding the Right Business Bank Account
As an entrepreneur, you want the best in class solutions for whatever you are doing. Your business account is no different.You need the best business bank account for your needs. You have to study your company’s banking needs, see what direction you believe the business is going in, and what you think would make the biggest impact on your business’ performance.
You should pay attention to a few things when choosing a business bank account.
The best banking solutions will offer some kind of digital banking experience, for both your office and for mobile devices. They will offer digital features such as online bill payment facilities, check deposit platforms and an easy-to-use mobile app.
You want a bank account with a business that has really taken time to develop a rich array of business banking services such as cash flow management, small business loans, and data analytics for revenue, revenue forecasting and much more.
We are living in an age where business operations are increasingly mediated by software. You need banking solutions that can easily be integrated with your other digital tools, such as Shopify, QuickBooks, payPal, Venmo or Stripe.
Some business bank accounts earn an interest, but that account’s annual percentage yield (APY) may be lower than that of an online savings account. So you should compare solutions and banks to get the best APY you can.
Virtually all banks charge monthly service fees, wire transfer fees, ATM fees and other service fees. Obviously you want to limit how much you are paying in fees. If there is no material difference in banking solutions, you should go for the lowest cost provider of banking services.
Access to bank branches and ATMs is so important. At a minimum, you want a bank account with a bank that has a branch in the state that your business operates out of. You should also consider if you will need branch or ATM access in other states, because not all bank holding companies have a presence in all 50 states of the Union. Access is important in the event you ever need to withdraw cash, make a cash deposit, or make an in-person visit to the bank to access various services.
Certain banks place limits on the number of monthly transactions that your business can make. When that limit is breached, a fee is charged. You should have a good sense of the number of transactions you typically have and of where that number will be in the foreseeable future, otherwise you will shackle yourself to an account for which you will have to regularly pay fees for breaching the transaction limit.
For more information on opening a business bank account, click here.