Buy Now

Business Bank Account

The Importance of a Business Account

Bank account

Types of Small Business Bank Accounts

One of my advocate students at Disability Associates asked me why he had to open a business bank account. He explained that he planned to act as a sole proprietor. This article will answer questions regarding the importance of opening a business bank account.

How to Open a Business Bank Account

Regardless of the size of your firm, you must open a business account.  Moreover, there is nothing magical about opening a standard business account.  Hence, most new business owners will contact their personal banker.  And, the owner need only request a new bank account in the company’s name.  So, by placing your company’s name on an account, you establish a legal link between the company and the IRS.

To register a business, you will be asked for the companies account number.  The registration process requires that you have a live bank account in the company’s name.  The company account links your business to the world of commerce.  Furthermore, the business account indicates to the IRS that the company is a legitimate enterprise.

Accordingly, there are a number of reasons why a banking relationship is so vital to your firm.  Moreover, your business bank account enables you to:

  1. Deposit business related income.
  2. Keep personal funds separate from business income.
  3. Prove business income.
  4. Prove business expenses.
  5. Establishes the legitimacy of your company.
  6. Strengthens the relationship between the company and your bank.
  7. Used by the IRS to verify your tax information.

Types of Business Bank Accounts

So, I will use a Social Security disability advocacy firm as my example in this discussion.  Let’s say that you are in the early stages of starting an advocacy service.  In addition, to receive a tax ID number, you must have an active business account.  There are three types of business accounts you can choose:

Business Checking Account

The business checking account is used to deposit incoming revenues generated by the firm.  Accordingly, you will use this account to pay the expenses associated with operations.

Business Savings Account

Most business checking accounts do not pay interest.  Therefore, if your company accumulates income, you may want to transfer those funds into an interest-bearing saving account.  Hence, the saving account allows your firm to earn interest on what would otherwise be an idle resource.

Business Escrow Account

An escrow account is similar to a savings account.  In disability representation, you are allowed to charge a case development fee in advance.  Thus, this fee is called a development fee.  Additionally, the development fee is used by the advocate to pay for the acquisition of medical records.  An advocate is required by law to deposit a development fee into an escrow account.  Consequently, an escrow account implies that the funds deposited are to be used for a specific purpose.