When to Open a Business Banking Account

If you’re starting a small business or working as a sole proprietor, experts recommend that you open a business banking account. A business bank account can streamline your financial management and in some cases it’s even required by the law. Read on for a closer look at ten moments when you should consider opening a business banking account.  

1. Upon Establishing Your Business Entity

Some businesses are required by law to open a business banking account. As soon as you register your business as a limited liability corporation (LLC), corporation or partnership, have a business bank account ready to send payments, receive payments, and handle payroll expenses.  

2. After Securing an EIN or Tax ID

To open a business banking account, a credit union or bank will typically ask that you provide an Employer Identification Number (EIN). You can apply for an EIN online, through the IRS. Be prepared to provide your Social Security Number, business address and business entity type.  

3. Once You Start Generating Revenue

While sole proprietors—in other words, people who run a business of one—are not legally required to open a business bank account, it may be helpful to do so once you begin receiving payments for goods and services. Separating personal and business finances helps manage cash flow and track business income accurately, no matter how big or small your business may be 

4. Before Making Significant Purchases or Investments

If you foresee a significant business purchase or investment coming soon, it might be the right time to open a business banking account. A business account will help in managing the transactions surrounding major expenditures and maintaining clear, accurate records when tax time rolls around.  

5. When You Need to Apply for Business Credit

A separate business account is often necessary in order to apply for a business loan or credit. Moreover, having a business account helps you to build a business credit history and provide documentation for lenders—making it more likely that you can secure the loan you need, at a better interest rate.  

6. Upon Hiring Employees

So: you’re ready to expand and hire employees. It’s important to set up a business account before you start processing payroll. Having a business bank account streamlines payment processes for your employees, simplifies tax withholdings, and eases the process of other payroll-related transactions.   

7. When You’re Ready to Implement Business Financial Tools

Today, small business owners have a wide range of affordable, accessible financial tools at their fingertips. When you’re ready to integrate financial tools—such as accounting software, payment gateways or merchant services—open a business bank account to ensure all transactions are recorded accurately and efficiently.   

8. As You Reach Growth Milestones

Many people choose to open a business account once they hit certain growth milestones, such as increased revenue or expansion into new markets. Opening a business account will help to manage increased transaction volumes and support scaling efforts.  

9. Prior to Engaging With Vendors or Clients

If you plan to establish formal relationships with vendors or client, it’s a good idea to open a business bank account first. Having a business account lends professionalism to your work, shows clients or partners that you are serious about the business, and provides a clear channel for transactions and payments.  

10. Before Filing Your First Tax Return

Open a business bank account well before your first tax season, to ensure accurate and organized financial records. Having an established business account will support smooth tax filing and help to ensure compliance with tax regulations, whatever the size and nature of your business.