When you first establish a new business one of the most important things to do is to open a corporate bank account.
All businesses need to have a business bank account in order to receive payments from clients, provide capital, pay suppliers for goods and most importantly provide a payment option for clients. Your business could have an e-wallet account like Paypal and bank account to accept payment in the form of bitcoins; online payments; credit card payments; cheques; cash and direct deposits. Depending on the kind of business you run your payment options will vary.
Let’s look at the reasons a corporate bank account is necessary:
- You need a business bank account in order to keep your business and personal finances separate and in order to keep an accurate record of your business finances from the moment you open your business.
- A business bank account brings credibility to your new business and when your business is new this is vital when dealing with both potential creditors and customers.
Why are business bank accounts more costly than personal bank accounts?
Business bank accounts are usually more expensive than personal bank accounts; you typically pay more commission and service charges while gaining less interest on your business bank balance. However there is a logical explanation and this extra cost can be justified; it is not simply the banks trying to make a quick profit on business accounts. So what do you get in exchange for the extra expense of a business account and how is this expense justified?
The process of opening a corporate account is more complex than opening a personal bank account. The reason being that KYC and AML procedures are more complex and require more time and processing than a personal account. The bank must comply with certain regulations and thoroughly investigate potential new corporate clients and their businesses. Each detail of the business must be examined in detail prior to the approval of a new corporate account. These investigations, examinations and checks require more resources, man power and time when opening a new business account than when opening a personal account.
As a corporate bank account is an asset of the business it is included in the sale of a business if and when the business is sold. For this reason there is more risk involved and the opening of a corporate account more expensive. This is also a another good reason to keep your personal and business finances separate.
As corporate accounts can have multiple signatories (for example the owners, directors, shareholders, managers, accountants etc.) it is typical for a business to require two signatories in order to make any kind of transaction. You can also have different groups of signatories. For example you can have a group of trusted signatories who can make transactions by themselves and a group with less authority where duel signatories are required. Online corporate accounts can also use the “dual signatory” rule. Making allowances for multiple and/or dual signatories requires more resources than a regular personal account and incurs further expenses thus making corporate accounts more costly to the financial institution.
Luckily bank fees are a deductible expense for business with a corporate account. When you choose a financial institution to open your business account you should compare the fees charged. Bank fees can vary according to the number of transactions you make each month, your bank balance etc. Calculate the number of potential bank transactions your business is likely to have in an average month and the lowest account balance you can foresee then compare this with the fee schedule of different banks. If you will not be needing branch banking an business bank account can save you money.
By using one account for your personal and business finances you are asking for trouble. In the end a combined account is harder to keep track of and your accounting can become a nightmare of confusion especially when taxes have to be paid.
- With a separate business bank account you will find submitting your tax forms much easier.
- Having a corporate bank account sends a professional, positive message to your paying clients and adds credibility to your business.
- By using the same account for personal and corporate banking you will have to spend hours going through the year’s transactions to identify personal expenses in order to find items that can be written off as business expenses. With separate accounts your books will be streamlined and recordkeeping will be straightforward. In the end having separate personal and corporate bank accounts will save you time and insure that you don’t overlook legitimate deductions.
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