Why Open a Business Bank Account for Your Dropshipping LLC

Why Open a Business Bank Account for Your Dropshipping LLC

There are any number of reasons to get into the dropshipping business: Passion for a particular product, enthusiasm for a certain customer demographic, the list goes on and on. Sooner or later, though, every dropshipper ultimately wants to turn a profit. And before you can start accepting payments from your customers, you’ll want to have a bank account set up.

Many dropshipping businesses are set up as limited liability companies, or LLCs. For an LLC, it’s critical to open a business bank account, not just to use your personal one. Whether starting an LLC in Texas, Nevada, or anywhere else, choosing the right business bank account is an imperative step. But what kind of considerations should LLC owners make when opening a business account?

What Are LLCs

To understand why dropshipping LLCs require business bank accounts, it’s first necessary to understand what an LLC actually is.

This legal structure has been around for decades, and is the most popular legal structure for new businesses in the United States. The LLC creates a business entity whose financial accounting is separate from the business owner, and in doing so it provides an important form of protection.

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Basically, dropshippers who start an LLC are able to keep their business assets separate from their personal assets. The upshot of this is that neither lawsuits nor creditors can claim your personal assets, like your family bank accounts or the house you share with a spouse.

LLCs offer a lot of other benefits, including ease of setup, ease of administration, and flexibility with regard to tax status. Still, for most dropshippers, the liability protections are the most valuable benefit to starting an LLC.

Why Dropshipping LLCs Should Have Business Bank Accounts

With all of that said, why should dropshipping LLCs establish business bank accounts, separate from their personal ones?

The answer lies in the very nature of the LLC. Again, one of the main reasons to choose this legal structure for your business is that it allows you to keep your personal assets separate from your business assets. Having clear and distinct bank accounts is an important part of this. Should a lawsuit ever be brought against your dropshipping company, for instance, having a business bank account allows you to clearly demonstrate how you’re keeping your assets separate.

What happens if your LLC is sued, or a creditor comes after the business, and you’re unable to prove that your personal assets and business assets are kept separate? In these instances, the protections offered by the LLC structure might fail you, putting LLC members on the line to settle the company’s affairs using their personal assets.

Additional Reasons to Open a Business Account

There are some other reasons to have a separate LLC bank account, as well. For one thing, separate bank accounts often make it easier to get your taxes in order. It also lends some credibility to your company, allowing you to take payments made to the business and not just to you personally.

Some additional perks to opening a business bank account for your dropshipping LLC include:

  • An LLC bank account provides opportunities for easier financial record-keeping.
  • With an LLC bank account, it’s easy to calculate and pay taxes.
  • Maintaining a separate LLC bank account can help minimize your risk of an audit.
  • LLC bank accounts make it easy to track and deduct any business expenses you accrue.
  • LLC bank accounts allow you to use business rather than personal checks and checking accounts.

These are just a few of the reasons to open an LLC bank account for your dropshipping business… but what’s the best way of doing so?

How to Open Business Bank Account for Your Dropshipping LLC

There are a couple of important considerations to keep in mind as you seek the best business bank for your dropshipping company.

Shop Around

First and foremost, compare a few different banks to find the one best-suited to your needs. Not all business bank accounts have the same benefits, and you’ll want to compare a number of core metrics, including:

  • Fees
  • Interest rates
  • Overdraft protections
  • Minimum balance requirements
  • Online banking access
  • Availability of customer support

Something else to consider is that if you’re someone who travels a lot, it may be helpful to find a bank that has locations across the country. Wells Fargo and Bank of America are the best bets in terms of sheer, nationwide availability. For many dropshipping businesses, however, online-only banking should work just fine.

Assemble Your Documents

When you head to the bank to open your business account, make sure you come prepared with the right paperwork. Document requirements can vary by bank, but will generally include:

  • The name of your LLC
  • Your LLC’s EIN (which you can claim on the IRS website)
  • Licensing information for your LLC
  • Articles of Organization
  • Names for all of the signers who will have access to your business bank account

Basically, your bank will need to prove that you have authorization to use your LLC business name; that you are clear on the general nature and intent of your business; that your business is properly established under state law; and that you have authorization to set up a bank account on the business’ behalf.

Something to be aware of: It’s possible that you might run into a bank employee who wants to know your DBA. This stands for “doing business as,” and it’s basically a fictitious brand name associated with your LLC. You do not need a DBA in order to get an LLC bank account, so don’t be thrown off by this request! Simply stating that you don’t have a DBA is perfectly fine.

Call the Bank ahead of Time

Rather than simply showing up at the bank to open your LLC account, we recommend taking the time to call in advance. Ask to speak with the person in charge of setting up business accounts, and confirm the following:

  • What documents are required?
  • What are the monthly balance requirements?
  • What monthly fees are applied to LLC accounts?
  • What kind of initial deposit is needed?
  • Do all members of the LLC need to be present, or just one representative?
  • What kind of availability can you expect from the customer service team?

Getting this information in advance may save you some time and hassle once you get down to the bank itself.

Things to Avoid When Opening a Dropshipping Bank Account

As you seek the best business bank account for your dropshipping LLC, there are a few things you’ll want to be mindful of, if not to avoid outright. These are the pitfalls to keep an eye on:

Temporary Promotions

Sometimes, banks will offer short-term promotions or discounted rates to incentivize business owners to open new accounts. These promos can certainly be enticing, but may result in higher fees and expenses in the long run. Always double-check that the fees or rates you’re quoted are the regular ones, not just temporary offers.

Different Packages

Something else to keep an eye on is when banks offer a few different account tiers, perhaps trying to sell you on their premium account, their gold membership, or their elite member status. More often than not, these advanced accounts offer a lot of stuff your business doesn’t really need, while leveraging higher fees. More often than not, these elite packages should just be avoided altogether, as they so seldom add real value to your banking experience..

Monthly Requirements

Finally, remember that some bank accounts will leverage monthly fees, while others may require you to maintain sufficient balance in order to prevent steep penalties. Again, it’s always best to ask about this kind of thing in advance… and if you don’t like the answer you get, keep shopping around.

Important Caution About LLC Bank Accounts

To reiterate, opening a business bank account for your dropshipping company is a crucial way to minimize your legal liability, allowing you to take full advantage of your LLC structure. There’s just one important caution, which is that it’s vital to always keep your accounts and funds separate so as not to negate those legal liability protections. Specifically:

  • Never pay personal expenses out of your business bank account; and
  • Never pay business expenses out of your personal account.

Following this simple concept is critical for anyone running an LLC, as it can help you avoid any instances where your personal liability protections may be waived or compromised.

Final Words

Dropshipping can be a lucrative business, but to maximize your success, you’ll want to be attentive to all the legal and financial basics. More often than not, this will mean establishing your company as an LLC, which will provide a range of benefits with regard to legal liability and taxation.

And, to capitalize on those benefits, it will mean setting up a business bank account, making a well-informed decision about the bank you select to partner with. Always do your due diligence, seeking a business bank that offers agreeable terms, robust customer service, and ease of access for you and your LLC partners.

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