Business bank accounts are not created equal, not all of them. Different banks offer different perks associated with the types of business bank accounts they offer. We recommend that you do your research right away because it gets increasingly tedious to switch accounts as your business grows. If you’re a business owner or aspiring entrepreneur, this article is perfect for you.
In this article, we will talk about how you can open a business bank account. Here’s what you can expect in this article:
- Introduction to Business Banking
- Do You Need a Business Bank Account?
- Steps to Open a Business Account
- Determine Cash Flow
- Documents Required
- Choose the Right Account for You
- Advantages of Opening a Business Bank Account
Introduction to Business Banking
It’s important to understand the difference between traditional banking and business banking. Thanks to the vast difference in the sheer volume of money in a private account and a business account, even things as simple as interest rates tend to vary.
Business accounts offer specialized services to suit the needs of a business. This can include overdraft facilities, customized credit periods, specialized interest rates, etc. These accounts typically also come with designated account managers or single points of contact for the business with the bank. Business account holders usually get priority treatment when it comes to customer service, too.
Needless to say, these perks come at a cost. So, business accounts come with a heavier price tag than private accounts. What you need to do is weigh the potential benefit of having this kind of an account against the cost of having it. If the benefit is greater, it makes sense to have this account.
In the subsequent sections, we will discuss these benefits and costs in greater detail.
Options For Business Banking Accounts
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Do You Need a Business Bank Account?
One of the most common mistakes entrepreneurs make is that they run their business through private accounts. This is usually to avoid the charges banks levy on business accounts. As convenient as it may sound, there a several reasons why it may not prove useful.
- If you mix your personal and business accounts, you are going to end up in a hopeless mess. You’ll lose track and eventually have no idea exactly where your money is going.
- Banks will close your accounts if they discover that business transactions are being done through personal accounts.
- If you have a ‘Limited’ company, you are legally obliged to have a business account.
- Using a personal account means you won’t be able to do transactions under the company’s name. This comes across as unprofessional on all fronts.
In short, if your business is not being run out of your garage, it’s best to open a business bank account. Trust us, the costs will end up being worth it if you choose the right account for your needs.
Steps to Open a Business Account
- Understand Your Cash Flow
If you own a business, you would already have an idea of how much cash is going to flow in and out of the business. Whether your transactions happen online or offline, you will have a minimum volume of money that is moved every quarter. You need to be aware of this number because banks may sometimes provide perks based on which bracket you fall under.
Further, you also need to have a preference between online banking and physical transactions. This may affect which services and perks you can take advantage of. For example, the bank’s physical network of branches is immaterial to you if most of your transactions will happen online. If that’s not the case, though, you don’t want to be stuck with a bank that has limited branches.
Get clarity on how long would it take to open your account. A few banks will open your account in a few hours, while others may take a minimum of 10 days.
- Documents Required
There are a few documents you would require to set up the business bank account i.e.,
- Proof of identity (eg. passport, driving license)
- Proof of personal address (eg. current bank or building society statement, utility bill, council tax bill)
- Company registration details and incorporation certificate
- Business address and contact details
- Details of total debt and credit cards currently held
- Estimated turnover
- Details of shareholders, if any
- Amount of personal wealth invested
PRO-TIP: Always keep an eye on what other customers are saying about the bank you plan to go with. Avoid banks with a fair share of complaining customers.
- Choose the Right Account
Some of the factors you should keep in mind when you are opening a business bank account:
- Standard charge: How much is the bank charging you for monthly or quarterly to open an account.
- Transaction charge: Some banks have charged if you pay in cash or cheques, there also are direct debits and standing orders.
- Internet Banking: It’s worth checking if the bank you are opening the account with offers internet banking or not, not all banks offer this service. And while you are at it you can also check if there are online banking services available, not merely a website, it is necessary to help you in taking care of your finances.
- Interest & Offers: It is always good to have accounts in banks that offer higher interest rates and decently appealing introductory offers. Don’t fall for a short-term benefit, thing about long term goals, your business is not going to be short term, your benefit from the business account shouldn’t be either. It may vary from one bank to another, your business account manager would be a good person to check with for the same.
- Branches: And while you are at it, also clarify how many branches do they have, where all are, they located. If you think of relocating tomorrow, what would the process be and how long will it take.
- Mobile Only: Mobile-only banks have a record of being a little risky but they also come with an option for the business owner to save on some money if looking for a light on the pocket option for their business banking requirements. A lot of banks nowadays have a far better option for mobile banking than they have for their traditional banks, they can handle your finances far better than the contrary and they come with their own set of benefits like;
- You will get notifications instantly on your phone hassle-free
- The accounting software can be integrated online conveniently
- If by any chance you lose your card or misplace it, you have a readily available service to block it whenever you want without you having to worry about connecting with the bank
- The fees in comparison to the traditional way of banking are far lower
- These banks over time have proven quite successful for start-ups but if you are someone with a flourished business and would require a physical interaction or heavy transactions, then this may not be the convenient option for you, you should go for the physical version of the bank.
The process of opening the business bank account should ideally take between 1-6 weeks but if you already have a personal account with the bank, it’s easier to push the pace of this process with the bank. It is also of great help in speeding the process if you have applied with the respective bank with a faster time of opening or you are a sole trader.
Advantages of Opening a Business Bank Account
A business banking account offers a wide variety of benefits not limited to the following:
- Time-Saving: With a business account, you don’t have to break your head trying to separate business transactions from personal ones.
- Easier Tax Management: Most banks offer services to make tax management easier for businesses.
- Access to Services: Facilities like business loans can’t be accessed unless you have a business account.
- Personalised Service: Having a personal business banking manager means you don’t need to have an entire department of your own to handle banking liaison.
Opening a business bank account may or may not be legally mandatory depending on the kind of business you run. However, the legal requirement says nothing about whether or not a business account will serve you well. It’s important to study the benefits of having one in the initial stages of your business itself, to avoid having to switch later on.
If you do choose to open a business account, it’s critical that you choose the kind that fits your requirements. Opening the wrong type of account or skipping the fine print may cost you very dearly.
We hope this article has proven to be useful in your quest to run a successful business!