If you run a business, you’ve possibly heard from your peers and even clients about opening a business account, but you haven’t paid any serious thought to it because your personal account is working just fine.
The pressure to open a business account might be piling with more and more people asking you for it when making payments and suppliers wondering why they get payments from your personal account. If you’ve given in to the pressure and finally want to make that big step and open a business account, this guide should help you understand everything you need to know about business accounts and how you can open one.
What is a Business Bank Account?
Business bank accounts are the financial base for your business. Like an individual, a business can also open various bank accounts to suit their needs and help them operate more easily. The business bank account is where you’ll hold funds for everything related to your business operations including;
- Paying employees
- Paying vendors and suppliers
- Funding your marketing departments
- Receiving funds from investors
- Receiving sales revenue either directly from clients or customers or in the form of payouts from your payment processors.
- Paying taxes
- Ordering supplies
- Applying for business grants and loans
- Ordering inventory
- Paying balances from you’re your business credit cards
Business banks accounts come in many configurations depending on the bank or financial service you choose to open the account and can come with various features such as integrating an accounting software to ease the process of keeping track of your finances. Also, there are various types of business banking accounts available with varying roles that the business can consider depending on their financial needs.
Types of Business Bank Accounts
There are three main types of business bank accounts;
Business checking account
This serves as the main account for most businesses. It is the account that handles most of the business’s finances and from where you conduct the essential tasks of the business’s operations. Most of the payment types listed above will be issued from this account.
The checking account operates quite like an individual account. You can put in money, withdraw, make payments and even transfer funds to your other business and personal accounts. The account comes with various features such as a debit card and a cheque book. With some banks and institutions, you can also manage the account through online banking or a mobile banking app.
Business Savings Account
The business savings account is different from the checking account. It acts as a place to store extra funds and let them grow in value. A savings bank account is an ideal for your business if you’re trying to put money aside for rainy days. This type of account enables you to earn competitive rates on your savings. This account isn’t the most flexible in terms of withdrawals and most banks will limit how many times you can withdraw from the account with most not allowing you to write cheques or withdraw at the ATM.
Businesses often confuse a merchant account with a business account. This account only applies to businesses that accept debit and credit card transactions. When a customer pays you, the money goes directly into this account, before being transferred to your other business accounts once it has been processed. Merchant accounts only help to facilitate essential credit and debit card transactions from customers.
Some online banks like Pay iO offer multi-currency accounts as a feature on their business accounts allowing businesses to receive money in different currencies from different countries. These accounts are ideal for businesses operating globally or sourcing supplies from other countries. A multi-currency account can save the business from paying expensive foreign exchange rates by holding money in the currencies they need to transact.
Different businesses need different business bank accounts depending on the size and the needs of the business. Each type of account is carefully designed to satisfy certain needs and you should carefully consider how it will serve your business.
Benefits of a Business Bank Account
The most obvious benefit of a business account is to maintain cash flow for your business. But there’s a lot more you can gain from having a business bank account;
Separating your finances
A business account allows you to have a dedicated place for your business’s finances. It can help you provide clarity and prevent your business funds from bleeding into your personal funds and causing confusion, making it hard to file taxes and meet your other business obligations.
Running all of your company’s income and expenses through a dedicated business account makes it easier for you to track outstanding invoices and generate financial statements. You can also use the account to apply for grants and business loans.
Most business accounts will also come with a feature that allows you to integrate the account with an accounting software that makes keeping record and track of your finances easier.
Simplify tax preparation
Having a business account makes it easier to file your taxes and meet other business obligations. With a separate business account, you won’t need to untangle business and personal expenses because that’s already done for you. The addition of accounting software into the account also simplifies the tax process even further. It makes it easy to categorise expenses and identify deductions ensuring you maximise savings and file accurately.
Protect personal assets
Another reason to have a business account is to shield your personal in a lawsuit. If you’re a partnership or corporation, a business account will separate your business and personal assets ensuring your personal assets aren’t compromised in case of a lawsuit. Also, using a business account for company transactions helps preserve the legal distinction between you and your business.
Make your business look professional
Your business account represents your entire business and not you. Your clients and vendors can see the account information and it might sound odd to them writing a cheque to you directly. Sending payments to your personal account might also create challenges to your clients as the labelling will be unclear.
Payments made to your personal account can make your account look unprofessional and unethical. There are several clients who might downright reject sending money to a personal account for this reason.
How to Open a Business Bank Account
Once you’ve done your homework and settled on the right bank or financial provider to open your business account, the rest can be done in a matter of minutes.
Decide the type of account you want
You have several account options available to you depending on the purpose of the business account. It’s helpful to start by deciding the types of accounts you’re interested in so you don’t go vetting banks that don’t offer the products you want.
Research bank account options
Create a list of factors and features to consider when vetting the different financial institutions. As you’re reading through the business’s bank account offerings on the market, write down a list of must-have features that you want for your account and the ones that you can live without. While vetting, remember to keep track of the fees at each bank. This will be a huge factor when you’re finally looking at the different options.
Narrow down your list
Using the features and factors and the information you have collected on the different banks, narrow down your options to three or five banks that check all of your boxes. This assessment could be based on the features they offer through their accounts, their positioning in the market, their ability to cater to your business industry or state or from recommendations from other businesses that mirror your own.
Focusing on fewer option allows you to dig deeper into each option to ensure you get the best as opposed to being overwhelmed by the available variety and picking something without proper research.
Have conversations with your top choices
It can be helpful to reach out to the financial institutions on your short list and ask for a brief conversation. You will have the chance to ask a real person your questions and might even receive unadvertised offers or incentives to open an account.
This option provides you with excellent answers to your questions and can also give you a first-hand experience of what to expect when you’re a customer for the bank. For instance, it can help you determine how quickly you can get in touch with customer support, how cordial and professional they are and how informed they are about their products and their business. All these are vital factors to consider when choosing the bank you want to work with.
Choose a finance institution
An increasing number of businesses are finding that online banks such as Pay iO are providing them with better and more competitive services than high-street banks. This is more so for the businesses interested in technology and innovation. Whether you choose an online bank or a high-street bank, you will need to make the decision.
Gather the required documentation
Check that you have the required paperwork to open the account. This differs depending on the bank. You can ask the bank directly for a list of required materials to open the account.
Once you have all the materials you need, complete the account opening documents either online or in person, submit the required documents and you will receive on boarding instructions and you’re ready to go. Some business accounts will require a deposit to activate the account but most are ready to use almost immediately.
Now you have a full idea on what a business account is, the types of accounts and banks you should consider when opening the account.