Starting your own business is exciting, and you cannot wait to open your doors and start selling your products or services to customers. You will very quickly find, however, that there will be considerable amounts of admin required before you can do this. Some of this will involve opening an account to put the proceeds from your business endeavors.

While that is an essential step for any new company, it entails just as much admin for your bank. They have to ensure your business’ legitimacy and that you are not engaging in money laundering or any other sort of financial crime. To do this, it is possible that they will need to scrutinize the following areas before they approve your account.

Registration and legal status

First of all, the bank needs to understand what type of business you have. You need to indicate whether you are a sole trader, in a partnership, a director of a limited company, or any other of the many setups available to businesses. This is because each of these structures needs to meet different requirements for tax purposes, so you will have to supply the relevant paperwork to the bank. This could be articles of incorporation or any other documents that confirm the legal status of your business.

You will have to supply any relevant licenses

If you are opening a professional practice, you will need to provide a license. Dealing with any restricted items, like alcohol or dangerous chemicals, is likely to require accreditation or a license, too. It is also worth checking if any other paperwork is required by state or federal laws and obtaining these as well. This will show the bank that you are compliant with all local and national legislation.

Who owns the business?

Before opening your company account, the bank needs to know who owns and is responsible for the business. To do this, you will have to provide identification for yourself and any other owners or major shareholders who own more than a quarter of the company.

They are likely to require:

• Social security numbers
• Full address details (and previous address if you have recently moved)
• Proof of identification in the form of a government-issued photo ID like your driver’s license

As part of the KYC (know your customer) process, they might also need to carry out further checks as part of enhanced due diligence. This is because if you had a previous conviction for financial irregularities – and then went on to use your new business for money laundering, the bank could also be liable for not checking you out fully beforehand.

Business tax details and address

With these boxes ticked, you can move on to providing relevant tax numbers like your employer identification number if you intend to employ people. If it is just you, your social security number (which you have already supplied) will suffice.

You should also supply the address at which the business will operate, even if it happens to be an office in your backyard. If you intend on just using a PO box, this is unlikely to be sufficient, so you will need to make alternative arrangements.

Financial projections or history

If your business is brand new, the bank will likely want to see your business plan, especially the part that details where the money will be made. This covers the product or service you are offering and where these fit into the market, along with projections for profits, or at least indicating the point where you will break even in the future.

If your business is up and running briefly, and you are moving to a new bank, they will also want to see the financial history. You will need to provide bank statements and any other supporting paperwork, as a good financial history and credit rating can speed up the application process no-end.

How you will be taking payments

Of course, the bank will want to know how your customers will pay for your products or services. You might not think this is relative, but large single transactions can cause card providers to scrutinize and delay the payment. In addition, subscriptions can also be subject to chargebacks. This can dramatically affect both the balance and cash flow within your account, and if there is a high likelihood of excessive chargebacks, the bank might not want your business.

Volume of transactions

Not only will the bank want to know about how you will be taking payments, but they will also want to know how often you will be taking them. If your business has a steady stream of money coming in regularly (even in smaller amounts), they will be much happier than if you are making sales infrequently. This is because regular deposits show a pattern of activity, so it is easier to monitor for irregularities of the type normally associated with fraud and money laundering.

Foreign ties

For the same reason, you need to be upfront if your business has ties with foreign countries. This could be one of the owners or if your business operates in tandem with one that is abroad. As well as money laundering, the bank also needs to check that the business arrangement complies with international regulations. In addition, they will have to run checks to ensure that the country you have links to is not subject to trading or financial sanctions.

To wrap everything up

Opening a business account is not quite as simple as you think. As well as checking out your business plan to see if it would be worth their while offering you an account, the bank has to make some other vital checks. They have to do their due diligence and comply with KYC regulations to make sure that they know who they are dealing with. This way, they are covered and happy that you have not or are unlikely to engage in any type of money laundering activity. Once these checks are complete, you can open your account and finally start to take payments from your customers for your products and/or services.

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• Source: Plato Data Intelligence.