So you’re branching out on your own. First of all, congratulations! Being your own boss is hard work but it’s also very rewarding. All sole proprietors and freelancers start small but if you’re willing to put in the work you could be making serious bank in no time. And when you start making serious bank, you’ll need a business bank account.
Here’s everything you need to know about opening a business bank account for your sole proprietorship.
What is a Sole Proprietorship Bank Account?
A sole proprietorship bank account is the bank account you’ll use to separate your business finances from your personal finances and track all your payments and expenses. Typically there are 3 types of business bank accounts:
Business checking account
This is typically all you need when you’re just starting out. It will let you do all the basics like make payments and manage your cash flow.
Business savings account
Once a business is doing well and has enough cash coming in every month to cover expenses, you might opt to put away money for your business’s future in a business savings account. The alternative option is to get a primary business account that comes with Envelopes, a feature to designate purposes for funds like payroll or rent. That way you can organize your money while still having it all in one primary account.
Business merchant account
If your business accepts credit card payments you’ll need a business merchant account. This account processes your payments and deposits them into your everyday business account. Some popular companies to open a merchant account with include Square, Stripe and PayPal. All of these payment processing apps can be integrated with a NorthOne account.
Why Sole Proprietors Should Open Business Bank Accounts
Legally speaking, you don’t need a separate account for your business as a sole proprietor but it is highly recommended. Here’s why:
Save time and money on bookkeeping
Having a separate bank account for your business lets you easily keep a record of your business transactions without them getting mixed up in your personal transactions. This will save you time and money on bookkeeping.
Limit stress at tax time
Tax time can be extremely stressful for people who work for themselves no matter how small their business may be. One of the easiest ways to limit stress around tax time is by keeping a clean and organized record of your business finances year-round. This is much easier to do with a business bank account. It’s also easier to claim taxes as a Sole Proprietor, than it is as an LLC.
Secure financing to grow your business
If you’ve got big plans for your business (and why shouldn’t you?) you might eventually need to look into some small business financing options so you are able to grow. You might choose to take out a bank loan, open a line of credit, or even apply for a grant. In all cases, you’ll need to demonstrate your business’s earning potential. Having a business bank account will be vital to this process.
Appear professional to your customers
A business bank account can help you build credibility as a business. For example, getting your customers to make a check out to your business account instead of a personal account will make the transaction feel more legitimate and establish trust.
How to Open a Sole Proprietorship Bank Account
Now that we’ve outlined why you should have a business bank account for your sole proprietorship, let’s get into how you can open one in 3 easy steps.
1. Research your options
You need to find a bank account that works for your business. Small business owners and sole proprietors have historically been overlooked by big banks that don’t cater to their needs. Just because you use a certain bank for your personal account doesn’t mean it’s the best option for your business. Do yourself a favor by asking yourself the following questions before deciding on a business account:
How much will it cost?
Remember to read the small print. A bank account could cost you nothing to open but end up costing your business thousands in hidden fees over time. NorthOne charges a flat rate of $10 a month for access with no small print and no hidden fees. The only fee you pay is $15 to send or receive a wire payment.
How hard is it to open an account?
Traditional banks often require a lot of unnecessary paperwork and weeks of waiting just to open a business account. This doesn’t have to be the case. NorthOne lets you apply for a Business Account in as little as 3 minutes (based on real-life user tests). No paperwork, no bank lines, no headaches.
Does it have the features I need to run my business?
These days, a good business bank account should do more than hold your money. It should actually make the day-to-day running of your business easier. For example, if you’re often on the move or work irregular hours, you might want to look into a digital business bank account.
This means you can manage your money from anywhere at any time without having to go to a bank. If you want a bank account that makes it easy to budget and save automatically, look for a Business account that lets you set up free Envelopes.
2. Gather your information
Opening a business bank account as a sole proprietor is much more straightforward than with other business structures. Banks will have different requirements and policies for opening an account but typically this is all you’ll need:
- Personal identification
- A certificate with name and date of birth
- Business license
- Monthly credit card revenue if opening a merchant account
3. Apply for your account
Once you’ve found the right bank account for your business, the only thing left to do is to apply. Despite what some traditional banks might tell you, this actually doesn’t have to take a lot of time or effort. In fact, based on user testing, NorthOne lets you apply for a Business Account in as little as 3 minutes. Don’t believe us? See for yourself.
Frequently Asked Questions
Can I use a personal bank account for a sole proprietorship?
Technically the answer is yes. There is no legal requirement for a sole proprietor to have a separate account for business. That being said, we highly recommend not using your personal account for your business. Opening a business bank account is a very small investment that will save you time and money in the long run. You won’t regret it.
Do I need an EIN to open a sole proprietor bank account?
You technically don’t need an EIN to open a business bank account if you are a sole proprietor without employees. However, this might change depending on the policies of the bank you choose to open an account with.
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