What are the Common Mistakes to Avoid When You Open a Business Account in USA?
When you incorporate a business, one of the most important things to start with is to open a business account in USA. Having a bank account will enable you to keep your personal finances and business finances discrete. This is particularly important for small businesses and self-employed workers who tend to manage their business finances through their personal accounts. However, this isn’t a smart way to do things.
There are several benefits of having a separate bank account for your business:
- Establish your business as a legal entity
- Separate your personal and business finances
- It is easy to keep track of your income and expenses
- Receiving or making payments easier through various payment methods like checks, direct deposit, internet banking, etc.
- Aids in bookkeeping because you can properly organize your business transactions
- Streamlined and more accurate tax filing
- Adds more professionalism to your business
Despite the benefits, you should be careful not to expose your business to potential risks when you open a business account in USA. Therefore, you should avoid some common mistakes to ensure you have an improved banking experience.
Common Business Bank Account Mistakes to Watch Out For
1) Not Choosing the Right Bank to Open a Business Account
It is important to understand that not all banking institutions are created equal. A bank that works great for your personal accounts may not be suitable for your business needs. Therefore, take time to compare various banking options available and choose the right one before you open a US bank account.
Some crucial features to look for in your business bank account are:
- Zero banking fees if you consistently maintain an account balance above the required minimum
- High-quality and hassle-free online banking services
- Scalability as your business grows
- High-end security and encrypted transactions
- Secure mobile banking app with personalized dashboard
2) Not Forming a Business Entity or LLC Before Opening a Business Bank Account
Banking institutions in the USA do not allow you to open a business account in USA unless you have established a unique business entity. This requires forming an LLC or other corporate entities and getting your Employer ID Number (EIN) to file for taxes. If you are operating a sole proprietorship business using your personal bank account, you are likely to miss out on the benefits of forming an LLC.
Understand which is the right business structure in the USA and likewise, form an LLC or any other business entity before opening a business bank account.
3) Not Proving Accurate Information
One of the biggest mistakes that business owners do is not providing proper documentation when opening a USA bank business checking account. If you miss out on some important information, the bank will not open a business bank account unless you provide all necessary documentation. Falsifying your business entity or providing false documentation may also affect your business credibility and you may not be able to open a bank account.
Therefore, it is important to provide all necessary and accurate documents as required when you open a business account in USA.
4) Not Determining Check Signing Authority
Many small business owners make the mistake of not setting up their check signing authorities when opening a bank account. This is important when you have business partners or employees who have the authority to perform business transactions with the bank. If you do not determine this and set up the signing authority in the beginning, making transactions through checks may become difficult.
To avoid the hassles, decide who will have the check signing authority. Do you require a double signature for every check or only for checks above a particular amount? This will solely depend on how you operate your finance operations in business.
The Final Words
A bank account serves as a legal entity of your business and helps establish your financial credibility – directly impacting your purchasing power to get a loan or new line of credit. Avoid these common mistakes and ensure you open a business account in USA that gives your business finances more protection and helps mitigate your risks.
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