A business checking account is typically the first type of account a new business owner will open. A dedicated business count allows you to make payments and receive money. It also organizes payment information for you. Having your transactions in one place saves time and confusion, which ultimately allows you to focus on building your business instead of organizing bank statements. Find out what you need to know about business checking accounts when starting a business.
Starting a business resources
Resources for starting a business
Opening a business is no small task. U.S. Bank has the resources, tools and solutions to help set you up for success now and as your business grows.
The first steps to starting a business
Starting a new business is an exciting time but there’s a lot to think about, too. So, where do you begin? We’ve broken down the basics that explain how to start a small business.
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Whether you need to open a dedicated business bank account or want to set up a way to accept payments, our bankers can help guide you to the right products and solutions to help you start your new business.
Know your market.
You have a stellar business idea – but is there a market for it? Understanding if there’s a need for a product or service like yours is the first step to launching your business. This requires market research. The information you obtain will help you develop your product or service and attract customers.
Follow these easy steps and you’ll become a market research aficionado in no time.
Learn about your industry.
Most industries publish reports online that highlight trends and sales figures. Even if you have a niche idea you can probably find information about some aspect of the market your concept relates to. You can also check out trade publications for more information that will help you figure out if your product or service might perform.
Identify your target audience.
Before you open for business, you’ll need to have a good idea of the type of customer that buys products and services like yours. The U.S. Small Business Administration (SBA) provides free demographic information that will help you determine which consumer groups are more likely to be interested in your products or services based on their purchase patterns. When you know your target audience, you can better market to them with relevant messages that lead to sales.
Talk to potential customers.
Once you have an idea about who your customers are, it’s time to get to know them better. You can create a poll or survey through one of many online services that specialize in market research. You can also create a poll on social media to ask people questions about their needs and what they desire in a product or service.
Examples of questions include:
- What are you willing to pay for a product or service?
- What could make a certain product or service better?
- What brands or companies do you like that offer products or services similar to yours?
- What do you like about the competition? Where do they fall short?
The information you obtain will provide you with valuable insight to help build your business.
Research the competition.
No matter what your industry, you’re going to have competition. It’s part of doing business. So, get to know the other companies that offer a similar product or service. Researching the competition helps you understand what you’re up against and learn how others have succeeded – or not.
Reading reviews, interviewing customers, and conducting surveys are effective ways to get this valuable information.
Test your business idea.
There’s nothing that replaces testing a real-life prototype. If you’re making a product, create a sample and let others try it for free to capture their honest feedback. If your product is complex or expensive to make, you can create a scaled-back version of your business idea to test the waters. Once you see how customers react, you can make adjustments as needed.
Write a business plan.
Whether or not you’re pitching to investors and lenders, starting a business requires a plan.
A sound business plan gives you direction, helps you qualify your ideas and clarifies the path you intend to take toward your goal.
The following exercise will help you gather the most important information. You can expand and add more details later. Once you have an outline, you can start building your business plan. Follow this standard business plan guide to help you formalize your plan before sharing it with your business partners, investors or banks to promote your concept.
- Vision: Your vision statement sets the stage for everything you hope your business will accomplish going forward. Let yourself dream, pinpointing the ideas that will keep you inspired and motivated when you hit a bump in the road.
- Mission: A mission statement clarifies the purpose of your business and guides your plan, ultimately answering the question, "Why do you exist?"
- Objectives: Use your business objectives to define your goals and priorities. What are you going to accomplish with your business, and in what timeframe? These touchstones will drive your actions and help you stay focused.
- Strategies: Your objectives describe what you’re going to do, while your strategies describe how you’re going to do it. Consider your goals and identify the different ways you’ll work to reach them.
- Startup capital: Determine your startup expenses. Having a clear idea will allow you to figure out where to get the money and how to spend what you have on the right priorities.
- Monthly expenses: What do you estimate your business’ ongoing monthly expenses will be? This may change significantly over time — think about what you’ll spend leading up to and immediately after launch, in three months, in six months and in one year.
- Monthly income: To cover your expenses (and hopefully make a profit), you will need to estimate your income. What are your revenue streams? It's always wise to diversify your income. That way, you won’t be tied to one stream that might not be lucrative as quickly as you need it to be.
- Goal setting and action plan: Once you have all the specifics outlined, write down step-by-step action items, This process will utilize the hard work you've already done, breaking each step down in a way that you can follow.
- Executive summary: The executive summary is the first section of your small business plan but is usually written last. Your summary should highlight at least one important statement from the above sections. It should provide a description of your business what you sell or the services you provide, describe your management team and include your mission statement.
A business plan is a work-in-progress. You can revisit it as your priorities change and to help you stay on track and keep your goals in sight. If you need help getting started writing your business plan, the SBA offers free templates based on different business structures if you need additional help organizing your thoughts.
Make your business official.
You’ve done the research for starting a new business and created a solid business plan. Now it’s time to make it real.
As a new business owner, you’ll need to follow a few steps to make it official, including:
Register your business name.
Once you name your business, one surefire way to legitimize it is to register with local and state governments. Before you do though, make sure other businesses don’t already have the same name, especially if you plan to use it for a website or a trademark.
Most states have a business name check tool as part of their online business services pages that you can use to make sure your business name isn’t already taken. The SBA suggests registering companies in four ways:
- An entity name to protect you at the state level
- A trademark to protect you at the federal level
- A “doing business as” (DBA) to show you’re the real deal
- A domain name to protect your web address.
Choose a business structure.
One of the most important steps you should take when you start a business is deciding your business structure.
Options include sole proprietorship, partnership, limited liability company (LLC) and several kinds of corporations. Not sure which structure applies to your business? Find out more here.
Choosing your business structure formalizes your business and lays the groundwork for other important decisions. This decision will inform how you pay taxes, raise capital and protect yourself from risks.
Get a business address.
A business address can help protect your personal privacy. If you use your home address, it will be publicly listed as the business address after you register your business. Some states or legal entities allow P.O. boxes or virtual addresses, but many will not, so if you use a P.O. box as your business address, you might have challenges.
Apply for business tax ID number.
Just like people receive a Social Security Number, businesses receive an Employer Identification Number (EIN) from the Internal Revenue Service. Head to IRS.gov to sign up for an EIN, or federal tax ID number, for your business. This number comes in handy when you open a bank account, apply for business licenses and pay federal taxes. You can also use your Social Security Number if your business is a sole proprietorship. Check with your state’s Department of Revenue to determine whether your business needs a state tax ID, too. Not all states require them. If you need help, don’t hesitate to consult with a tax or legal professional.
Apply for business licenses and permits.
Check with federal, state, county and local governments to see if your business requires any permits or licenses. If a federal agency regulates your type of business, then you’ll need a federal license or permit. States generally license more broadly, covering everything from restaurants and retail to construction.
Open a dedicated business bank account.
Don’t combine your personal bank account with your business funds. It’s smart to separate your personal and business finances, making it easier to track company expenses and income.
Account options include business checking, business credit cards and merchant services, which allow you to payment solutions that give you the flexibility to accept payments from customers online, in-person or on-the-go. Having a business bank account also helps your company establish credit.
Establish a way to accept payments.
Consumers expect convenient ways to pay. That includes online, mobile and in-person payment options. This means making sure you’re set up with a payment solution that allows you to accept credit and debit card payments and other contactless payments. Believe it or not, some customers will take their business elsewhere if a merchant doesn’t accept a preferred method of payment.
Get business insurance.
Purchase insurance to protect you and your personal finances. Then if the worst happens – property damage, liability or an injured employee – insurance has you covered. Note: Workers’ compensation laws and regulations differ by state. Small businesses also should consider a business owner’s policy that combines property, liability and income insurance. This will cover missed income if your company can’t operate during a loss.
With these structures lined up, your business will be more solidified. And customers will be reassured that you are legitimate.
Fund your business.
You have a business plan, a registered name, a dedicated business checking account and a way to accept payments. Now it’s time to figure out how you will fund your new venture and manage your cash flow in the early stages.
It costs $30,000 on average1 to start a small business. According to the Federal Reserve, the top funding source for new businesses are:
- Owner’s personal savings, friends, or family
- Government funding sources
- Financial institution or lender
- Nonprofit/community-based funding
Here are the different types of business funding available for small businesses and what you need to know to decide what kind of funding is right for you.
Self-funding
Nearly 6 in 10 entrepreneurs use their personal savings to start their businesses.3 If you factor in personal credit cards, home equity loans and other personal funding, that number jumps even higher.
Pros:
- Autonomy: You maintain control over strategy and operations.
- Motivation: Placing your personal savings on the line might give you added incentive to succeed.
Cons:
- Personal risk: If you use your own money, failing could mean personal debt or bankruptcy.
- Limited resources: If you’re relying on your own funds to start your business, you are limited to what you have or can leverage from your assets.
- Stunted growth: Without outside funding, it may take longer to achieve your goals.
Tips: Legally registering your business with your state — as an LLC, simple partnership, S Corp or C Corp — can help limit some of your personal liability.
Create business bank accounts and credit cards in your business’s name, even if you use personal savings to fund them. Business lenders look for a credit history for the business itself, in the business’s name.
Friends and family
Friends and family provide another potential resource for funding your business. You may find that your support network wants to support your new venture. But there can be strings attached. Beyond any potential damage to personal relationships, it can become complicated when it comes to taxes and legal risks.
Pros:
- Less red tape: Your friends and family are unlikely to run a credit check or ask for revenue projections.
- Encouragement: It can be nice to feel like those close to you support you with more than words.
Cons:
- Taxes: Gifts above a certain amount are taxable. If the money is viewed as a loan and there is no interest rate charged, the IRS may calculate interest retroactively.
- Equity trap: Friends or family may ask for a share of the business, which could potentially limit future funding options.
Tips: Have a frank conversation about terms and expectations before you borrow from friends or family. Be sure to discuss the amount, payment schedule and interest rate, then document what you decide.
Crowdsourcing
Global investment through crowdfunding is expected to reach $96 billion by 2025, according to the World Bank.4 Fundraising is often done via a third–party website, and investors often expect sample products, recognition or equity in exchange for their donation.
While this type of fundraising is used for more than just business ventures, many of the most popular fundraising campaigns have been for new products or businesses.
Pros:
- Wide net: Crowdfunding platforms put you in touch with a vast pool of would-be donors.
- Lower bar: Donors on a crowdfunding site are unlikely to apply the same scrutiny to your business that a traditional lender would.
Cons:
- Regulation and fees: If you use a third–party platform to fundraise, chances are there are fees involved. Plus, these sites aren’t subject to the same regulation as more traditional capital sources.
- Idea theft: If you haven’t trademarked your idea, there’s a chance someone with more resources could see it on a public site and steal it.
Tips: Read the fine print to understand what protections and liabilities you have before using these sites. While they can be a great and innovative source of funding, there’s a lot of unknown risk.
Business credit cards
Business credits cards offer many advantages, including rewards, high credit limits, and the opportunity to build business credit.
Pros:
- Available to new businesses.
- Can use personal credit report to qualify.
- Depending on the card, can earn rewards and cashback, along with other perks.
- It’s a good way to build business credit.
Cons:
- Fees and interest.
- Most business credit cards require a personal credit guarantee.
- If employees have use of company cards, their spending will need to be monitored.
SBA loans
Many banks offer SBA loans, which are small business loans partially guaranteed by the government. Financial institutions usually prefer that a business have a credit history and record of income before approving traditional lending. However, SBA loans offer business owners the opportunity to take advantage of favorable terms, while removing some of the barriers to traditional financing options.
The funds may be used for vehicle purchases and refinances, equipment purchases, working capital, inventory and other general business needs. Read more to explore the different types of SBA loans available to small business owners.
Pros:
- Available to newer business. If you’re not sure if you qualify, talk with a banker to explore your options.
- Loans up to $5 million2.
- Favorable terms.
- Both personal and business credit reports, income tax returns and bank statements are considered.
Cons:
- Financials may be required.
- Most lenders have a collateral requirement.
Online lending
Online lending may come from a variety of sources. It could be from a traditional bank, like U.S. Bank. It could also come from an online-only lender. Many of these online-only lenders lend to businesses that might not qualify for a more traditional small business loan. To do this, they often use less strict guidelines for underwriting. For instance, one company looks at the number of packages shipped and received.
Pros:
- Nontraditional: If your business is unique, and traditional metrics that banks look for are hard to produce, some online lenders may be a way to access funds.
- Convenient: Whether a traditional bank or online-only lender, you can often apply for and access this money digitally. The application process can feel streamlined.
Cons:
- Terms: Loans from online only lenders may come with high interest rates or other fine print. Keep a lookout for amortization schedules, prepayment penalties, and high premiums.
- Less regulation: Some companies might not have the same oversight and government compliance programs as more established lenders.
- Many online-only lenders are startups and may not have financial stability.
Tips: Read the fine print. Make sure you know the annual rate, the amortization schedule, prepayment penalties and more. These details can help you evaluate whether you can really afford the terms.
Traditional lending
While it is more difficult for startup businesses to obtain traditional lending, it may be available. Talk with a banker about your options.
How to qualify for a small business loan
If you’re ready for a small business loan, there are a few criteria that lenders look for.
1. Time in business: Many banks will offer traditional business loans after a business is established for a couple of years.
2. Credit history: If you use one of the methods of funding discussed here to get off the ground, you can still build a credit history by using those funds to open a bank account and credit card for your business. If your business has no credit history, whether you qualify will be based completely on your personal credit history.
3. Performance: Lenders are likely to look at your balance sheet, with a focus on overall profitability.
Build your dream team.
There’s a saying, “If you’re the smartest person in the room, find a different room.” As a new business owner, it’s important to surround yourself with smart people in different areas who can advise you along the way. This will help you avoid pitfalls and take advantage of opportunities that can help your business thrive.
Find a networking group in your area. There are groups that include members from many industries or are industry specific. Or, join a Business Chamber of Commerce or look for connections on LinkedIn or other social media groups.
In addition to surrounding yourself with the right mentors, it’s important to choose good partners and employees. Here are some tips for surrounding yourself with the right people.
Be detailed with vendor requirements.
When it comes to lining up vendors, begin as you would when hiring. Spell out what product, material or service you seek, along with the criteria that suppliers must meet.
These requirements might include quality assurance, lead times for delivery, and payment terms and conditions. It’s hard to land what you need if you don’t spell out those requirements first.
Do vendor due diligence.
Verify vendors by requesting samples or references from other customers. Ask about the quality of their work and the professionalism of their employees. Then check with the Better Business Bureau or Angi, (formerly Angie’s List) to make sure they have a strong track record. It’s also not a bad idea to search for the business online to uncover any major issues like lawsuits or recalls.
Craft winning interview questions.
Whether you are interviewing a potential employee or vendor, similar guidelines apply. Standardize the questions so that you’re comparing apples to apples. For example, think of unconventional questions that delve into candidates’ skills, such as, “Explain something to me in 5 minutes that you know a lot about.” These types of questions break through rehearsed answers and allows candidates to demonstrate confidence – an important attribute for success.
With this dream team of new employees and vendors lined up, your business will be primed to continue thriving.
Setting up your business online.
Most businesses have a website. It’s often how customers find out about a business. If you sell products or services, you may want to have a way for people to place orders and book appointments. Here are some resources for setting up your business online.
How small businesses are growing sales with online ordering
Why ecommerce for small business strategy is integral
Key considerations for online ordering systems
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