There are millions of blog posts, articles, white papers, and more filled with tips about wooing venture capitalists, enticing angel investors, strengthening bootstraps, and otherwise acquiring initial funding. Yet, once your startup has the funds it needs to launch, the web suddenly goes silent, leaving you to determine for yourself how you should manage your new business’s new finances.
Few startups are large and stable enough at the outset to afford a full-time finance person, which means entrepreneurs usually end up managing their own business checking accounts. However, business checking isn’t identical to personal checking; you can’t open an account and expect your startup to thrive. Here are some top tips to help you understand and organize your business’s checking needs.
Picking the Best Bank
By now, you should know that not all banks are the same; in fact, some banks are obviously better than others, especially for business needs. Though you might love the bank you use for your personal accounts, they might not have the services necessary for startup banking. It is worthwhile to research before settling on the bank your startup will use.
As you are surveying your options, you should consider what your startup will likely require to function effectively. At the bare minimum, your business will need business savings and checking accounts. Few credit unions offer business-specific accounts, so you can generally rule these out right away. Additionally, you should decide whether your startup will need a line of credit, specific types of credit card, or cash management. You can usually discover business checking options online on banks’ websites or call their customer service lines for more detailed information.
Opening Different Accounts
Eventually, your business will need way more than a single checking account to function effectively. However, you can usually set up additional accounts as you need them. Initially, you will probably only need two bank accounts: a checking account and a money market account.
Your checking account will endure most of your business’ activities. This is where sales income will be deposited and where you will pay your operating expenses, including payroll. You should always have at least three months’ worth of expenses stored in your checking account — just as you should always have a personal emergency fund well-stocked for your own financial wellbeing.
A money market account is less familiar to most first-time entrepreneurs. Essentially an interest-bearing savings account, a money market account allows your money to grow even when it isn’t being invested in your business. Plus, these accounts are FDIC-insured up to $250,000 at all financial institutions, so you can feel secure parking your cash in one of these accounts. However, there is one significant rule: There is a cap on transactions into and out of your money market account. This means you can’t transfer funds more than six times per year. Fortunately, because you will have a checking account to do your startup’s financial heavy lifting, this shouldn’t be a big issue.
Preparing the Paperwork
It isn’t difficult to open these accounts — as long as you have the right paperwork in hand. Though different banks will have different requirements, especially for business accounts, you can be certain that you will need copies of at least three vital business documents:
- Business formation documents. If you never filed for formation with your Secretary of State, you technically never started a business. Your startup needs formal formation before it can open business accounts at banks. In your state, formation documents might be called articles of incorporation or articles of organization; they ultimately all mean the same thing: Your startup is a business.
- IRS EIN. Upon formation, your startup should have been awarded an employer identification number (EIN), which functions like a social security number for businesses. Because the IRS and other institutions use your EIN for tax and filing purposes, your business accounts must be associated with your EIN.
- Business governing document. Most banks request this information to ensure that you have the authority to open bank accounts. In your startup’s governing document, which may be bylaws or an operating agreement, you should be clearly imbued with the power to open bank accounts, especially if your startup has more than one owner. If you don’t have that written authority, someone else you can trust must.