How to open a bank account for your sole proprietorship in 4 steps
You’ve finally made the decision to start your own business, and you’re going to make it happen! The first step is deciding what type of business structure will work best for your new venture. A sole proprietorship is the easiest business entity to start because you can open your own bank account with just one person named on the account. Four steps are all it takes to open your bank account and start managing your business finances in no time. Here are those four steps to opening a bank account for your sole proprietorship!
Step 1: Decide if you need an online or traditional account
When it comes to opening a business bank account, you have two options: Traditional and Online. If you’re going with traditional, make sure the institution is federally insured and offers free checks, overdraft protection, savings accounts, etc. Choose an institution near where you live or work so that getting cash will be easier. Decide how much money you want to keep on hand – usually, 25% of gross sales is a good rule of thumb. It’s also important to know the limitations of your chosen account, such as the maximum balance limit. Most institutions have limitations on how many transactions can take place per day without triggering additional fees.
Step 2: Decide if you want a checking or savings account
When deciding which type of account you want, make sure to consider how frequently you will be making transactions and whether or not you want an online interface. For example, if your company is mostly comprised of online transactions, then opening an online checking account would likely be more beneficial. If you have a lot of people depositing funds into your account on the same day (like payday) but do not withdraw from it until the next day, then a savings account might work better. A business that only makes one deposit each week and does not withdraw money until the following week might want to choose between the two accounts based on their balance at any given time (if it’s higher than $2,500 – $10,000).
Step 3: Obtain a Taxpayer Identification Number (TIN)
Obtaining an EIN will ensure that the IRS has all of the information needed to communicate with you. The IRS will not send any notice or correspondence if they do not have your EIN. You can obtain an EIN by going to their website at irs.gov and completing their online form.
Step 4: Open Your Account
Review any loan documents before you sign anything. This will give you more information about what the lender needs to verify and how they plan on verifying it. After reviewing the documents, sign them if you are comfortable with them. If not, return them with a request that they are modified. Once all documents have been signed, the lender will deposit funds into your account and then send you updated paperwork that reflects the new balance. Make sure you deposit this paperwork in a safe place.