Published By Janet Gershen-Siegel at July 13, 2017
You’ve got a brand-new business. You’ve got clients. You’ve got expenses. And congratulations, you’ve got money. So, where do you put that cold, hard cash?
Please don’t say a mattress.
Instead, you need a business bank account, to keep funds separate from your personal accounts and to keep the Internal Revenue Service happy (Maybe that’s going too far. Let’s just say not unhappy).
Your business needs a legal and a mailing address (these can be the same). Because business addresses are a matter of public record, you might want to keep an address separate from your home. The legal address is for service of process; talk to your lawyer about this and see what he or she thinks. You might be able to hire an agent to accept service for you.
Get yourself a business Federal tax ID number from the IRS. In order to open a business bank account at all, you are going to need one, so get this out of the way first. The IRS has a form for everything, including getting a Federal tax ID number. This is form SS-4. Once you have filled it out, you either mail or fax it to the appropriate office (the form contains this information). Getting a Federal tax ID number is free. The appropriate IRS will usually send you (by mail) the number within about two or three weeks of receiving your form.
Get your business a state tax identification number for the state in which you intend to do business. You can find all of the states’ government information here. However, state websites differ; a random check of Massachusetts requiring visiting the Department of Revenue site, then clicking on Businesses and then selecting Registering, Filing and Reporting. On Louisiana’s site, it took some digging to find Form 16019. Your state might have similar hoops to jump through, so be prepared to spend some time searching or talking with a clerk.
Looking to keep your business as a sole proprietorship or partnership but want to do business under another name (this is known as a DBA, which stands for doing business as)? Then you will need a fictitious name, and you will have to register your fictitious name with your city, county or state so you can open a business account.
In many states, just go to your county offices and pay a registration fee to the county clerk. However, in some other states, you are required to place a notice in a local newspaper. In addition, in most states, corporations are not required to file fictitious names unless those corporations do business under names other than their own.
The costs of filing a fictitious name notice can range from $10 to $100.
In order to be able to accept credit cards, you must set up a credit card merchant account. A merchant account makes it so your customers’ credit card payments can be transferred to the bank account you designate. Your start-up fee will range from about $50 to $200, plus monthly and per-transaction fees. You may also have to pay monthly statement fees, which tend to run from $4 to $20. There are also transaction fees; they are usually 5 to 50 cents/purchase.
A discount rate–the percentage charged/transaction –tends to vary from 1.5% to 3%. This figure is based on the volume of card sales, the degree of risk, and whether you swipe cards at a brick and mortar store or you accept orders online.
Without a credit card merchant account, you can’t accept credit card payments, as you need that, plus a business bank account, and a means of processing payments.
Don’t want to set up a credit card merchant account? You can instead accept online payments such as PayPal, which takes a small fee per transaction (0.7 to 2.9% of the transaction plus 30 cents per order, depending on your company’s sales volume).