If you’re starting out as a farmer, you might have fallen into the practice of using your personal checking account to pay inputs and accept payments. Running everything from your trusty personal checking account, the one you've had forever, can seem practical: When the money comes in, you can shop for groceries, get supplies and pay your bills, all from one place.
However, mingling personal with business funds can lead to problems, especially if you’re a farmer (or some other solo entrepreneur). Home and work life intermingle on the farm, and that can create problems down the line.
Your farm is a business. Don't manage it with your same personal checking account. To make your accounting organized and in compliance, opening an agri-business account is your best bet.
Downsides of mixing home and farm expenses
It creates confusion at home
Think of the many situations on a farm where business expenses can be difficult to extricate from the personal.
- Preparing and serving meals for the help during harvest.
- Purchasing boots and other work attire.
- Fuel for your tractor and personal vehicle.
- Electricity for the house and outbuildings.
It creates headaches for your accountant
If you or your partner earn income outside the farm, intermingled funds make things even murkier. Keeping things separate will leave your accountant with more time to help you with financial strategies, especially during tax season.
To avoid these problems, you’ll want to open a business checking account and start using it, the sooner the better. In fact, it will make life a whole lot easier.
Read more about smart ag management in 3 ways to build financial efficiency into your farm.
Benefits of opening a separate account for farming
It simplifies your accounting
Having all your farm-related transactions and accounting in one designated place lets you stay focused on business decisions.
It reduces errors
When you’re online shopping, your balance may indicate that you have enough for that new air fryer. But will you really have enough after your upcoming supply run?
It lightens your mental load
Cognitive load is the amount of information the brain can hold and process at one time. It’s one thing to decide if you can afford a new dishwasher. But consider what happens when you also must calculate upcoming farm expenses.
When there’s too much information to manage at once, that can scramble your decision-making abilities and make you overlook something important. Separate money in separate accounts can be a huge psychological lift and help you get things done more quickly.
Get financially savvy and read Ag Accounting 101: The Farm Balance Sheet.
Questions to ask to find the best small business checking account
To find the best small business checking account for your farming operation, here are some questions to ask.
What’s the minimum opening balance?
Most banks require a deposit to open a business checking account; these amounts can vary.
What’s the monthly maintenance fee?
Many banks assess a monthly fee that’s automatically deducted from your balance on the same day of each month. Typically, a straightforward business checking account will have lower monthly fees than a higher-tier account that’s linked to various cash management services. However, keep in mind that many banks waive this fee when you meet certain requirements, like maintaining a monthly balance. If the account earns interest, that can help offset service fees.
Are there transaction limits?
Before you settle on the account, you’ll want to read the fine print. Some put caps on monthly transactions at something like 150 or 300 per month, and charge a small fee for each one that goes over. Every check cleared, each swipe of the debit card and each withdrawal will count toward the tally. Though these fees usually amount to less than $1, it can quickly add to your monthly tab. If you’re in one of those months of high volume transactions, that can put you in a bind, so plan carefully.
What other tools does the account have?
Your business checking account will work similarly to your personal account in that you’ll expect features like online banking, mobile deposits and the ability to transfer funds to savings and loan payments. Higher tier accounts may include extra features that make it easier to get insights on your operation, such as a monthly analysis of your deposits and expenditures — so you can plan and make smarter decisions.
Can you scale up to cash management?
As your venture grows, you’ll diversify your business and perhaps even have a person or two on the payroll. That’s where you’ll want to transition to a business checking solution that integrates with cash management tools. Cash management tools can further streamline your finances by letting you:
- Make payroll
- Accept credit card payments or ACH deposits
- Automate balance transfers to a money market account
- Bolster fraud protection
Check out How to achieve positive cash flow on the farm.
Does the bank excel in service and product offerings?
There are plenty of online-only accounts that look good on paper. But why forgo excellent service when a community bank can offer everything you want and more? Community banks can put big-bank tools at your fingertips, with competitive rates and top-notch service with a personal touch.
At Minnwest Bank, our knowledgeable ag bankers live and work right in your community. We offer the convenience of online business banking, but when you need answers, we’re right here to help.
Choose the best agri-business checking option for your farm today!
