This week in the Freedom Friday blog and email newsletter, we're continuing the series 10 Steps to Take Your Small Business to the Next Level in 2023, and this week we're discussing the fifth step to take your small business to the next level, which is to either open bank accounts for your small business or change them. If you're a small business owner, its very important to keep your business assets separate from your personal assets. If you mix the two together, you will open yourself up to liability if your business gets sued. This is another reason why its important to maintain business formalities. If your business gets sued, you do not want your home, your car, or anything else that belongs to you personally to be taken in judgment or at risk because of “piercing the corporate veil.” An important step to keep your business assets separate from your personal assets is to have a separate bank account or accounts for your business.
As a small business owner, you will want to open at least one (or more) business bank accounts for your business. In order to open a business bank account, you will need your EIN number, a copy of your articles of organization or certificate of incorporation, and possibly additional paperwork as required by your bank. Some banks may require you to present your operating agreement or bylaws, and a few banks may require a “resolution” for you to open your business bank account. A good bank will draft the “resolution” for you, but I've dealt with a bank that requires you to draft the “resolution” yourself. I would shop around different banks to find out what they require, because different banks will have different fees and requirements. A bank that drafts the resolution for you is usually friendlier to work with than a bank that requires your attorney to draft the resolution to meet the bank's requirements.
If you previously operated as a DBA, and you changed your business to an LLC or other business entity, you also need to change your business bank accounts to reflect that. Bank accounts for a DBA are usually under the business owner's name. Remember “John's Window Cleaning”? His bank account is probably under his personal name, John Brown, or whatever. If John changed from operating as a DBA to an LLC, he needs to make those changes at the bank, as well, if he wants to avoid mixing his business assets with his personal assets.
Lasty, you'll notice I mentioned you should open one (or more) business bank accounts. There are some good reasons why you might want to open more than one bank account for your small business. At the very least, you need to open a checking account. However, you might also want to open a savings account. Also, if you want to implement “Profit First”™ or any kind of bank account budgeting cash management system, you will need to open more than one business bank account. As always, you should consult with a CPA or accounting professional before making that decision.
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