As your small business grows, so will your to-do list, including opening a small business bank account. Managing cash can be a challenge, so you may want a bank that offers more than just free checking. Consider establishing a relationship with a banker who understands your business and can help your business grow.
In this article, learn how to review your baking service options and tips to help you open a small business bank account.
Review the different banking service options
You may need a number of banking services to operate your small business, depending on your offerings and structure.
For example, online banking or mobile banking is an important tool that can benefit most small businesses. Many mobile banking apps allow you to access all of your banking information and deposit checks by scanning them.
Also, credit card usage is growing, and you need a bank that can process credit card data for your customers. Before choosing a small business bank account, be sure to review your options. Explore them below.
Credit card processing
Your business should accept credit cards at physical store locations and online purchases. Credit cards provide another payment option for customers, and credit card use is growing.
Accepting credit cards will give you an advantage over small business competitors that don’t offer this payment option. Your chances of getting a sale increase if you accept credit cards, and customers make bigger purchases using them versus cash.
- 80% of U.S. consumers use credit cards over cash, according to a recent report by the Federal Reserve.
- In a 2021 study by CID, consumers will spend up to 83% more when using credit cards over cash.
Automated bill payment
Your bank must be able to integrate your bank account with your accounting system, so you can set up automated payments to vendors.
Make the effort to pay all of your vendors electronically. You can track automated payments in your accounting software, and you’ll have a complete audit trail for each transaction.
Paying by physical check increases the risk of fraud, plus you’ll have to manage paper documentation. If you issue physical checks, the bank reconciliation process is more time-consuming.
Payroll processing
A small business must complete these steps to calculate payroll expenses and submit tax payments:
- Data collection: When you hire an employee, collect the proper information to withhold the proper amount of payroll taxes. Employers must withhold federal income tax and may withhold dollars to pay for company-provided benefits. If, for example, you offer a retirement plan, a worker may want payroll dollars withheld and invested in the plan.
- Calculating net pay: The net amount of employee pay is the gross pay minus tax withholdings. You’ll also calculate withholdings for Medicare and Social Security.
- Payments: You must pay each worker by check or via direct deposit.
- Reporting: You must submit a tax filing for federal tax and state tax withholdings to the IRS and the state department of revenue. Retirement plan contributions, state unemployment payments, Medicare taxes, and Social Security taxes are reported to other entities.
- Withholding payments: Forward all tax and benefit payments to the taxing authorities, retirement plan firms, and other benefits providers.
Just as with bill payments, your bank must be able to integrate with your accounting software. In addition, banks need the ability to work with third-party payroll processors.
Instant payments
Also, consider if the bank offers instant payments. As a small business owner, it’s important to get paid quickly and have money hit your bank account instantly.
After reviewing the different services that bank lenders offer, it’s time to choose a bank account for your small business. You can start most U.S. bank accounts with an Employer Identification Number (EIN) or Social Security number if you operate as a sole proprietorship.
Here are some factors and account features to consider as you choose a bank account:
- Ensure they’re knowledgeable about your industry
- Understand annual percentage yield
- Review minimum balance
- Discuss fees
- Establish a relationship with your banker
- Align the banker with your personal history
Ensure they’re knowledgeable of your industry
The banker must understand how businesses in your industry operate. They must understand several factors, including:
- Profit margins
- Sales cycle
- Customer acquisition cost
- Monthly recurring revenue
Partnering with a bank that is knowledgeable of your industry will help with your overall success in the long term.
Understand annual percentage yield
To assess your bank account options, you need to understand the annual percentage yield (APY).
APY is the rate of return (interest) you earn on business savings accounts, business checking accounts, and certificates of deposit (CDs). The APY rate assumes that your interest is reinvested in the account, which means that interest compounds.
Review minimum balance
If you are required to keep a minimum account balance to avoid fees, cash management can be more difficult. The minimum balance reduces the flexibility of the cash available in your account, so you’ll have to plan cash flow more carefully.
The requirement may be stated as a minimum daily balance or a minimum balance requirement. If you see any language regarding a minimum balance, ask the bank to explain how they calculate the required balance.
Be sure to also check if there’s a minimum account opening deposit.
Discuss fees
It’s also important to discuss fees that may be included. Typical bank costs include fees for:
- ATM usage
- Check writing
- Paper statements
- Wire transfers and incoming wires
- Monthly maintenance fees
- Transaction fees
- Withdrawals
- Overdrafts
- Service fees
- Cash deposits
As you look for a bank to meet your long-term needs, you can also review the type of business accounts they offer. The type of small business checking account you choose will vary depending on your needs and creditworthiness.
Establish a relationship with your banker
When considering a business banking relationship, start with the end in mind. Your banker needs to understand the unique challenges of your industry to serve your banking needs as your small business expands. Over time, you may need a line of credit for operations or a long-term small business loan to purchase assets.
To help establish a relationship with your banker, be sure to:
- Communicate regularly
- Speak about your business’s goals
- Share as much detail as possible
- Stay honest
Small business owners must build trust with a banker so that the bank is willing to add services and lend money. Loan approval requires more than a set of financial statements. Ultimately, a loan officer must know you and trust that you’ll repay the loan on time.
Align the banker with your personal history
A business owner with prior success in an industry is more likely to succeed, and bankers value experience. Be sure to:
- Talk with the bank’s loan officer.
- Determine if they understand how you operate.
- Think carefully about the services you need from your bank.
- Think of how your needs may change due to company growth.
Personal creditworthiness may also be a factor, particularly if you need a business loan down the road. How you handle personal finances is important to a loan officer. If you’re willing to move personal investment assets to the bank, you can build a stronger relationship.
Small business bank accounts: Steps to set one up
Choose a bank that provides the services you need and offers a checking account that works for you. Be sure to follow these steps to find the best small business bank account:
- Determine what you need: Meet with your staff, think about your business needs and processes, and decide on the banking services your firm needs.
- Ask for referrals: Ask business peers, accountants, and attorneys for a referral. A good banker is like finding a great auto repair shop. If you’re happy with the service, you’re more than willing to share the company name with other people.
- Have a discussion: Contact banks and discuss your needs and the services they provide. Your banking relationship is important, and you need to do more than simply check a website.
- Apply for an account: You can complete most account applications online.
- Start banking: Once you’re approved, submit your opening deposit and start using the account.
Don’t hesitate to call your bank once you open the account. With proper communication, you can establish a great relationship with a bank that can support your business growth.
Related:
- How to start an e-commerce business and succeed in 2023
- Why small business employees are quiet quitting and what you can do about it
This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.
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Top 10 sales tax strategies for small businesses
Many of us dream of running our own business and when we act on that dream, the life of joy we envisioned can quickly turn to pain if we fail to adjust to ever-changing tax requirements. Some of the more recent tax changes apply to simple sales tax, which becomes not so simple for those with a sizeable number of online sales or high dollar amount of online sales in multiple states. If this is your business scenario, the following 10 strategies for dealing with sales and other business taxes will help you maintain or bring back the joy of running your own company.
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In the past, retailers typically needed to register, calculate, collect, and report sales tax in jurisdictions only where their business had a physical presence. This presence provided the minimum connection, or nexus, needed for a state or local to require tax registration, collection and reporting from retailers. The 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, 585 U.S. ___ (2018), however, broadened nexus to include economic presence and immediately triggered other states to enact or begin to enforce their own economic nexus laws. For a current list of economic nexus laws, by state, see the Supreme Court Tax Decision – Online Tax Laws by State. In reviewing the article, you may notice that many states base their new economic threshold on the:
- dollar amount of sales or number of transactions; or
- dollar amount of sales and number of transactions
To complicate the matter even more, the definition of “sale” is not uniform among the states, and can vary between gross, retail, or taxable sales.
Business license tax
New jurisdictional sales tax responsibilities may also trigger new Business License Tax liabilities, albeit often low dollar. Nonetheless, not understanding your tax requirements can create administrative headaches and detract you from focusing on your true passion, your business. When dealing with a tax agency directly to understand your sales and other business tax obligations it is often best practice to request the agent direct you to the written guidance on the revenue agency website to help avoid any misunderstanding or miss-guidance.
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In light of the Wayfair ruling, many states have enacted, or are in the process of enacting, new rules with regard to Marketplace Facilitators. Make sure your facilitator agreements stay compliant with these tax changes.
1099-K impact
Sales via a Marketplace Facilitator may result in the facilitator issuing you a Form 1099-K, reporting gross payments received from the facilitator on qualifying sales. If facilitators are responsible for reporting and paying sales tax on your sales via their online portals then make sure the 1099-K received is not overstating your income by the amount of this tax. If it is, then request an amended 1099-K. Otherwise, you could be stuck with the mess of having to reconcile your 1099-K reported income with a tax agency.
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Whether you are the business owner or only deal with the accounting and tax issues for the company, you should always understand what it is the business is selling in relation to the sales tax rules. Sometimes, what you think is exempt might actually be taxable, depending on the jurisdiction. If you provide a service along with the sale of goods, the service may be included in the tax base but may be exempt when provided alone. The key, know what you are selling and check your state(s) taxability rules to avoid any audit assessments down the road.
Sales tax calculator
Even if you sell standard taxable goods, for multi-state sellers it can be overwhelming to keep up with sales tax rate changes that are constantly happening throughout the US. To ease this burden, consider using a reputable sales tax calculator (including our sales tax calculator), which provides current sales tax rates for all of the more than 10,500 US state and local taxing jurisdictions.
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Not all sales that qualify for an exemption are exempt on their face. Often, exemptions apply based on the buyer (e.g. non-profit) or the intended use of the goods sold (e.g. resale). To support an exemption in these instances, a seller must obtain a properly completed exemption certificate from the buyer. Trouble arises when something about the certificate is wrong or the exemption period listed on the certificate has expired. If you have exempt sales based on receipt of a properly completed exemption certificate, you must create a process for storing the certificates and, prior to exempting any sales based on a certificate, make sure the certificate provided is one the applicable state will accept. Otherwise, you could be stuck paying for uncollected tax, plus any penalties and interest imposed by the state.
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Sometimes small businesses purchase goods for use in their business without paying any tax. If this is you, remember that there might be an obligation to self-assess use tax on the purchase. Continued failure to report use tax by small businesses may trigger an audit. The key to avoid mishap is to set-up a process to catch and report applicable use tax on purchases.
Personal property tax
Align the process for use tax accrual with any state/local Personal Property Tax compliance, if applicable, to help with tax abatement and filing deadlines.
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When a business registers to collect and report sales and use tax, the tax authority provides a notice to the business of the proper filing frequency and will issue notices per tax type if a jurisdiction treats tax types differently (IE: sales or use tax).
Filing frequency
The filing frequency defines when tax must be reported and paid to the tax authority. It is usually based on revenue and typically set to monthly, with tax due on or before the 20th of the month following the period reported. For example, an October monthly return may be due on or before November 20. 24 States have worked to unify their filing rules under the Streamlined Sales Tax (SST) and require monthly filing, but those filing rules only apply to certain sellers. The key here is to remember that every tax jurisdiction has its own filing frequency thresholds and your initially assigned frequency can change.
Tax type considerations
Many states, like Massachusetts, administer tax on sales the same way regardless of where the sale originated. Further, if a business needs to self-assess use tax on purchases, that tax is often also reported on the sales tax return. Some states, however, differentiate tax administration by tax types:
- Sales tax – intra-state sales; occurring within a state;
- Seller’s use or vendor’s use tax – inter-state sales; occurring between states;
- Consumer’s use tax – on purchases for which tax was not properly paid.
Jurisdictions with tax type distinctions typically require separate registration and reporting, per tax type. Even when businesses report different tax types on the same return, they must make sure to report each tax type on a separate line. Reporting for the correct tax types every month, in every state always helps small businesses minimize out-of-pocket tax expenses.
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More and more states are moving from paper to an electronic process for reporting and paying sales tax. Make sure to follow these e-requirements or states may assess penalties, even on zero-dollar returns.
Also, remember that states can make mistakes or have technical “glitches.” Save your online confirmations, as well as proofs of mailing and cancelled checks related to paper submissions, so that if there is a mistake, you can use that proof to eliminate penalty or interest assessed for late submissions.
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Many states offer a collection allowance or timely-file discount, regardless of whether filing returns electronically or by paper. When a discount is available, claim it. There is no point in leaving money on the table. When claiming discounts, however, be careful that your business is reporting under the correct tax type because not all jurisdictions allow a discount for every tax type.
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How can small businesses keep track of filing frequency and due dates in every jurisdiction where they are required to report, especially as that number grows? One way is to set calendar reminders, including special rules for payments. If filing by mail, it is important to note which jurisdictions treat the return and payment timely if postmarked on or before the due date or measure timeliness based on the receipt date, an issue common for Alaska locals, for example.
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Small businesses never want to miss a DOR notice or fail to timely act on a notice as required, especially an audit notice. If you have an online DOR sales/use tax account, make sure your business name, address, phone and email are current. If you authorize the DOR to send notices via the online account, set-up a process to also receive hard copies, by mail. Once you get a notice, read it and respond in accordance with the instructions and timelines contained in the notice.
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As your business grows in the e-commerce market, things can get very complicated and hard to keep track of for small businesses. Consider these 10 strategies for dealing with sales tax and a few other business taxes. It will help you retain or bring back the joy of running your own company. You can also consider the use of an automated sales tax solution such as QuickBooks Sales Tax to help manage the nuances of sales tax laws, reduce the risk of error, and minimize the likelihood of a sales tax audit.
This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.
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