Many businesspeople use their personal bank accounts for transactions when starting out. This seems like a simple solution, but it can cause problems in the long run. For instance, mixing personal and business finances can make it difficult to keep accurate financial records. It can also be in violation of legal mandates for some types of businesses.
It is advisable to have a dedicated business banking account because it comes with a lot of advantages. For one, it makes it easy to keep accurate records of your revenue and track corporate expenses, including those deductible from tax liabilities. It also makes it easy to accept online payments.
This article will list and explain the main advantages.
It Is Legally Required for Certain Business Structures
Any enterprise that is incorporated with a distinct legal identity from its owner must have a separate account for business transactions. This type of enterprise is known as a limited company, wherein the owners are not personally liable for debts accrued by the firm (this perk is called limited liability).
If you run a limited company and mix corporate and personal funds, your firm will likely lose the limited liability protection that comes with its legal structure.
It Allows You to Accept Credit Card Payments
The main goal of opening an account for most businesses is to accept online payments from credit or debit cards. Personal accounts are not designed to handle the kind of transaction volume that businesses handle. Thus, a corporate bank account is necessary to accept online payments.
To accept payments, you must choose a dedicated payment processing service. The processor will take money from customers’ cards, deposit it in your bank account, and collect a fee for its service. There are many such services, e.g., Stripe, PayPal, and Checkout.com.
Note that corporate accounts command more fees than personal ones because they are built to handle a higher transaction volume and have features that typical customers can’t access. The higher fee is a reasonable tradeoff for the benefits you get from it.
Your Business Will Look More Professional
Using a corporate account for business transactions looks way more professional than personal ones. When a customer wants to send a payment, it is preferable for them to see the name of the company they are familiar with rather than the owner’s name that they may not know.
If you offer customers a personal account for payment, it could lead to subtle forms of judgment. They could think that your business is just a personal hobby that has a low chance of staying alive in the long term. Some vendors outright refuse to send money to personal accounts to avoid risks.
Doing So Can Help You Prepare for Growth
Opening a business banking account helps you prepare for growth in many ways. It is what sets the foundation for building your company’s credit, which is very important if you need to request a loan to expand operations. Any banking firm you request a loan from will likely demand that you have a business account with them and request past financial statements. A separate corporate account makes it easy to keep accurate financial statements to provide to them.
When your company is just starting, you might decide to use your personal accounts. However, as the company grows and the transaction volume increases, you will likely encounter personal account problems. In contrast, having dedicated business accounts from the start ensures that you can scale your operations without hassles.
Your banking provider can also offer some features to help you grow your company, including:
- Integration with accounting software: You can link corporate accounts directly to accounting software such that any transaction is automatically reported and sorted appropriately.
- Corporate cards: You can request physical or virtual cards for your employees. Afterward, you can monitor every transaction they make with the card.
- Invoicing tools: You can access tools that help you issue professional invoices to customers. Customers who receive the invoice can pay directly into the corporate account.
- Online banking: You can open a business account online on a website or by downloading a mobile app. Afterward, you can send and receive money with a few button clicks. Silverbird is an example of an online corporate banking platform.
Tax Preparation Is Made Easier
It becomes easier to accurately record your net revenue and profit and pay the required taxes when you have a dedicated corporate bank account. Otherwise, you may have to spend countless hours or even hire external help to prepare your taxes. It also becomes easier to track expenses that you can deduct from your tax liabilities.
If you are ever subject to a tax audit, having separate personal and corporate accounts makes it easier to pass the audit. Otherwise, expect serious scrutiny of your personal transactions.
Conclusion
Having a dedicated business banking account confers many benefits to a company, which we have listed for you. You can open this type of account at a physical banking branch or entirely online, with the latter being more convenient. If you are looking for a suitable digital banking platform, Silverbird is an ideal one that lets you transact across borders.
