6 COMMON PITFALLS WHEN OPENING A BUSINESS BANK ACCOUNT (AND HOW TO AVOID COSTLY MISTAKES)
Turning your hobby into a small business is exciting - but it comes with challenges. One of the first hurdles is properly managing your finances. Setting up a business bank account is one of the most important steps, yet many new business owners make costly mistakes. In this post, we’ll walk you through 6 common pitfalls when opening a business bank account - and show you how to avoid them.
Pitfall #1: Showing Up Unprepared
It’s not uncommon for small business owners to show up unprepared to a bank when opening up a business bank account. Your business must exist before a bank will set up a business account. You must register your business and provide documentation before the bank is willing to open the account.
How to Prepare for Your Appointment
Know which type of account you want to open (checking, savings).
Bring your Articles of Organization (proof of business registration).
Have your EIN letter from the IRS.
Be ready with your personal ID (driver’s license).
Be prepared to make an initial deposit.
Some credit unions may also require a membership fee to open an account.
Be prepared to answer the following questions:
How you plan to use the account (e.g., cash, ACH, wiring).
The estimated number of monthly deposits and withdrawals.
Your estimated annual gross receipts.
How long you’ve been in business.
Pitfall #2: Thinking You Don’t Qualify
Many small business owners assume they need a full business plan or detailed projections before opening a business account. Surprisingly, banks don’t ask for this information. As long as you have the necessary documents—like your Articles of Organization and EIN letter—you can open your account without a business plan.
Pitfall #3: Ignoring Bank Fees & Fines
A business account differs from personal banking and will most likely have service charges. This is normal and expected. Different banks and credit unions will charge different amounts for business account fees. This can cost anywhere between $5-$15 (or higher) depending on the terms and conditions of your bank and the account you’ve set up. You may also have two service costs if you have both a checking and savings for your business.
Another important aspect to consider is overdraft or insufficient funds fees. These can be especially tricky for new business owners with fluctuating cash flow. Always keep track of your account balances and try to avoid these fees to prevent unnecessary costs.
Pitfall #4: Maintaining Minimums
Minimal balances are another area of financial planning that is easily forgotten. In addition to service costs, you will usually need to have a minimum balance. This minimum tends to be a higher amount than minimums subject to personal accounts.
Ask your bank about minimum balance requirements when you open your account. Some banks may reduce service fees if you maintain a certain balance, so it’s worth planning ahead to meet these thresholds.
Pitfall #5: Access to Digital Banking
Digital banking, mobile deposits, and account access may be necessary to have for your business. This may be the case if you frequently set up selling venues at art fairs and marketplaces. Some smaller banks or credit unions however may not have all the digital luxuries that larger banks have.
You also will want to ask if the account is linkable to common payment providers and services you use such as Shopify, Square, Paypal, and more. These payment providers oftentimes link directly to your bank account to charge their fees or deposit revenue you have generated from sales.
Make sure the bank offers robust security features like two-factor authentication and encryption for digital transactions. With mobile deposits and online access, security should be a top priority.
Pitfall #6: Debit, Credit, & Checks
One suprise I learned is that opening a business account doesn’t immediately give you a debit card or checks. You will need to apply for a debit card and a credit card. These are not automatically given to you when you open a business checking or savings account.
Getting your banking cards set up will require some additional paperwork but can oftentimes be completed at the same time you open your business bank account. You will have to apply for a debit, or credit card and ask for checks.
While checks may not be a common part of your personal banking, they might be more frequently used in business transactions. Most banks provide checks for free (unless you opt for custom designs), but make sure to ask for them when opening your account. Opting for the free checks will help keep your business costs low.
By avoiding these common pitfalls, you’ll be well on your way to setting up a business bank account that works for you. To maximize your success, regularly review your account activity, monitor fees, and choose a bank that aligns with your business needs. Don’t forget to shop around and find a banking partner who supports your long-term goals. With the right planning, you can streamline your finances and focus on growing your business.
