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Your Guide to Small Business Banking in 2021

Business banking plays a critical role in the success of your small business. If you are ready to be a reputable small business owner, one of your first tasks should be opening a business bank account to manage the money for your small business properly. You want to set up your business to be as organized and easy to manage as possible, and a small business bank account will help you achieve just that. 

The Benefits of a Business Bank Account

Business accounts keep your business and personal finances separate, simplify business taxes, and make cash flow in and out of your company more efficient. The longer you wait to setup the banking for your small business, the longer you miss out on the benefits outlined below.  

Accurate Bookkeeping

If you have a business bank account for your small business, you don’t have to worry about going through transactions and trying to decipher which ones were personal related and which ones were business related. 

 

Know your business cash flow:

Clean and accurate bookkeeping with the help of a business account means that you will know your cash flow better. A business account helps give you the ability to easily see where your business stands and helps you track actual income and expenses vs. accounts receivables and payables when reconciling your bookkeeping records. 

 

Ready for tax season:

A business account for your small business translates into more accurate bookkeeping and less prep work for tax season. Maintaining a clean record of business transactions will make it a lot easier for you and your accountant at the end of each year. Be sure to set aside funds throughout the year to pay your taxes. You might consider setting these funds aside in a separate account so they aren’t tapped for general operating expenses.

Follow the Law

If your business is incorporated, the IRS recommends that you keep a separate business bank account. Thus, you would be performing your due diligence by opening a business account to help manage the funds for your small business. By the way – it doesn’t matter whether your small business is an incorporated sole proprietorship, a partnership, or a corporation. When a business incorporates, it helps protect you from personal liability by maintaining the separation between you (personal) and you (business). If you want the courts to see you as a separate entity from your business, then you should conduct your small business in a way that maintains the separation. 

Look Professional

To accept and deposit checks in your business name, you need a business account. Accepting a check in your business name helps show that you are reputable and professional to clients.

Business Loan Eligibility

If you think you might apply for a business loan one day, that’s reason enough to open a business account for your small business.  If you want to apply for a business loan, no matter your business type or where you get the loan, a business bank account may be requirement. 

Proving Your Business Is Not a Hobby

If you run your business from your home, it is vital to keep your business and personal finances separate. You may never be audited by the IRS, but in case you are, you will be thankful you opened a business account. You may be able to take a tax deduction for using your home as a business space, but you generally must have space devoted to your business.

 

The IRS is particular about proving your business is an actual business and not a “hobby business.” Showing you are making a profit from your business for every three out of five years helps to prove it is not a hobby. And just because you pass the three out of five rule, it doesn’t mean you are safe from an audit.  You will be more prepared if you have appropriately managed the financials for your small business. Mixing your personal and business finances in one banking account, makes an IRS audit more complicated. Make sure to keep all of your expense receipts, invoices, and paperwork as a backup. 

Finding the Right Bank for You

Now that you are ready to open a business account to properly manage the bank account needs of your small business, the next step is to find the right bank to fit your needs. 

Size Matters

When it comes to banking, you have a lot of different options to choose from. Something to consider is whether you would prefer to work with a small community bank or a large national bank, both of which have their own pros and cons. 

Digital and Mobile Access

Digital and mobile access is a new feature that gives self-employed workers the ability to manage money for their small business from anywhere and at any time. If you are ready to stop going to your bank every time you need to deposit a check, you should look for a bank that offers these features. The quality and quantity of these services vary greatly, so make sure to do your research. 

SBA Lenders

If you are applying or thinking of applying for a loan with the Small Business Administration,1 you might want to look for a bank that is also an SBA lender. A bank with strong ties and is experienced working with the SBA may help you through the process and/or offer guidance on any issues that may arise.

Explore Account Options

While you are looking for the right bank to fit your needs, you should also evaluate the services and accounts that they have to offer. There are several ways to identify the services you will need to get the most out of banking for your small business.

Transactions

A bank transaction is a recorded action every time money moves in or out of your business bank account. Every time you pay rent for office space – that is a transaction. Every time you deposit a check from a client – that is a transaction. The number of transactions you make each month play a role in the right bank and services for you. Some business bank accounts may charge a fee for every transaction or give you a monthly allotment for free. Other business bank accounts might give you unlimited business transactions for free but have another requirement, such as maintaining a minimum balance in your account. 

Minimum Account Balance

What is the lowest minimum balance you plan on having in your small business bank account at a time? Knowing this number will help you further select the right bank account for your needs. Some accounts may charge a minimum balance fee if your account dips below a certain amount. For example, X bank may set a minimum balance of $500. If that is the case, then you are required to keep at least $500 or more in your account at all times to avoid a fee. If you have no idea what your number could be, or if it might fluctuate significantly, you might want to opt for a business bank account that does not require a minimum account balance. 

Small Business Account Fees

When you compare banks, ask about the different fees that could arise in a small business account. For example, does the bank charge an inactivity fee if there are no transactions for a certain amount of time? If you have to travel abroad for business and use the debit or credit card linked to your business account, will a foreign transaction fee apply? Other possible fees to inquire about include wire transfers, check fees, non-sufficient fund fees, ATM fees, and paper statement fees. Knowing about these fees upfront will only help you manage money for your small business better.

Business Checking Accounts

At Woligo, we have partnered with First Fidelity bank, Member FDIC, to offer two business checking accounts to allow our clients the flexibility of choosing the best business checking account based on their individual needs. First Fidelity Bank and Woligo are both part of the Cameron Group of companies.2 We understand that banking for a small business is a critical component of success, and we have designed our business checking accounts with you in mind. Business owners only need $100 to open a business account with us online. Account holders will receive a free business debit card and have access to mobile deposit services. They will also be able to open two separate accounts within a single small business checking account. Click here to learn more.

More Features for Your Future

Just because you keep your small business funds separate from your personal funds doesn’t mean your bank accounts need to be at separate banks. In fact, Woligo’s partnership with First Fidelity Bank allows you to have your small business bank account, your personal bank account, your individual retirement account, and your health savings account all in the same place. Woligo was built to make your life easier

Personal Checking Account

Protect your personal funds while controlling your budget and spending habits. That’s what a personal checking account lets you do. And when you open a personal checking account with the same bank as your business account, it’s a lot easier to write yourself a paycheck and transfer funds. Use your personal account to withdraw money on the go or to schedule and pay your bills. This is your account for all of your personal expenses – however you opt to spend or save.

Individual Retirement Accounts (IRAs)

IRAs are tax-advantaged accounts designed for long-term savings and investment. You don’t need to be an employee of a large corporation to start saving for retirement. Small business owners and independent contractors can open an IRA account and start building their wealth right now, all while possibly enjoying tax deductions and tax-deferred or tax-free growth on earnings. If you meet the requirements, you can choose between a Traditional IRA and Roth IRA to help save funds that will sustain your desired lifestyle after retirement. A main difference between the two is the timing of their tax advantages, and which one you choose largely depends on whether you think your income and tax bracket will be lower or higher in retirement and whether you meet the contribution requirements for each type of account. 

Traditional IRA

With a traditional IRA, the tax advantage is typically seen in the present as you may be able to deduct all or a portion of your IRA contributions on your income tax return. These earnings grow in a tax-deferred account until you withdraw them. The funds will be taxed according to the tax bracket you are in when you withdraw your retirement money. 

Roth IRA

Roth IRAs are funded with after-tax dollars, so your contributions are not tax-deductible in the present. However, if you meet the Roth IRA requirements, once you start withdrawing your funds, the money is tax-free. 

Health Savings Accounts (HSAs)

Healthcare costs shouldn’t keep you from getting regular check-ups or visiting a specialist when you’re in pain. If you meet the requirements to contribute to a Health Savings Account (HSA), you can build a rainy-day fund for future eligible medical expenses with tax-free contributions. It helps keep out-of-pocket healthcare payments down, so you don’t have to break the bank before reaching your deductible. Use the funds for regular check-ups or significant surgeries. It’s your money to use on eligible medical expenses as you wish.

You Deserve Banking Solutions at Your Fingertips

Banking for your small business in 2021 is all about flexibility, accuracy, and simplicity for you. A small business bank account is a valuable tool. Whether you are just starting or have more sophisticated needs, Woligo can grow with you as your business grows. You want stability while still preserving the freedom and flexibility of your work-life world. Our banking solutions were created for self-employed workers.

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Sources:

  1. https://www.sba.gov/
  2. https://www.cameronconnection.com/