I’ll say it right from the start, I am not a fan of big banks. With this recent economic fiasco, and the controversies of some of the big banks imposing so many fees, small and local seems to be the way to go. Personally I keep my business in credit unions and small community banks. This article will cover all the major choices, however, and you can choose which one is best for your business.
One of the hardest things about running a small business at home is keeping your business life separate from your personal life. When handling finances in your business, it is very important to have an account separate from your personal accounts. It is easier to keep track of your income and expenses, and you won’t be tempted to use your business income toward personal bills and spending. Also, the IRS requires businesses to keep accounts separate from personal finances. I find giving yourself a “salary” (either a specific amount or a percentage of your gross business income) and paying yourself weekly or bi-weekly, then putting the rest of your gross business income back into your business is the wisest choice.
Deciding on where to open your account can be a daunting task. Here are the major choices, along with the pros and cons of each.
Commercial Banks – Major banks offer various business accounts, including interest bearing, rewards, online banking and fee free accounts (with minimum balance). The upside to major banks is convenient hours and locations. The downside is many big banks are heavy on the fees and penalties, and some have a habit of merging with other banks and changing the rules. Pay attention to the fine print and always read your statements to make sure you’re not being hit with fees you didn’t know about.
Community Banks – These banks are based in a certain area, and usually are smaller, more personal and offer back to the community they serve.
Credit Unions – Credit Unions are owned by the members/customers, which is you. Rates for business accounts are typically lower than the commercial banks, and they also offer online banking, and some offer rewards points and debit cards. Some Credit Unions require that their members are affiliated with a certain organization to join, but many just require you to reside in the state or area where they are chartered.
Online Banks – A fourth type of business banking option which is increasingly popular due to the Internet is online banks. These banks offer some attractive options, such as free accounts, very low fees and incentives. The downside to these banks is that everything is done online, so if you prefer face to face banking, this is not the way to go.
It is also a good idea to open a companion savings account in order to earn interest on funds that you put aside for taxes and other expenses. Also ask about their offerings for a business credit card account. Don’t use your personal credit card for business purchases. It is much better to have a separate credit card for business purchases to keep your finances in order.
