If you’re a business owner, you must accomplish one simple but critical task to ensure the smooth running of your business: setting up a business bank account.
What’s a business bank account? Why is it important? And what are the benefits of setting up one?
We’ll answer these questions in this article.
What’s a Business Bank Account?
A business bank account helps you keep business transactions separate from your personal ones. Setting up a business account requires you to meet certain requirements and follow conditions.
Business banking offers many benefits that you can’t access if you only have a personal bank account. Because unlike private or personal bank accounts, business accounts are created specifically for businesses
Here are some benefits you’ll get.
Adds Professionalism and Credibility
When running your business, you want your customers and suppliers to know you’re a professional. Having a business bank account tells them you’re running a legitimate business, not a hobby, so it also boosts your credibility.
You’ll want to pay suppliers through a separate business bank account. The same goes for your customers, who want to see a professional business name when they make payments instead of your name.
Improves Business Credit Score
Banks and lenders often reject funding applications that don’t have a business checking account. The reason: a business account proves the seriousness of the business.
At the same time, if you have had financial problems before, having a business bank account will prove cash flow. You will also establish your timely payment records.
Therefore, it improves your business credit score. Down the road, a good rating helps you get easier access to small loans and funding.
Easier Payment Processing
Nowadays, consumers rely heavily on electronic transactions for purchases. If they find you don’t have a business bank account, they will have to use cash or cheques. But they might not have those with them.
Business bank accounts help you process debit and credit payments faster using a point of sale (POS) system, where customers can choose from various payment methods.
Your payment processing becomes more streamlined while also providing customers more payment options.
Tax Management and Accounting
Having your business bank account separate from your private account makes filing taxes easier.
Also, a business bank account can help you track your business expenses and receipts. These expenses should be separate from your personal expenses.
Business accounts help minimize the instances of claiming a personal expense as a business one. If you don’t file taxes accurately, you can face penalties.
When you have a business bank account, you gain access to business loans, cash advances, lines of credit, and other types of lending. Regardless of your business structure or the source of lending, you need a business bank account to proceed.
And when the business financing is approved, the lenders will put the money directly into your business account.
Business loans are useful when you need to reorganize debt, secure additional supplies, buy new equipment, or expand your business. Without a business bank account, you’ll be missing out on a lot of these opportunities.
When Do You NOT Need a Business Bank Account?
There is one instance when you don’t need a business bank account: sole proprietorship.
Sole proprietorship refers to one person – the business owner – who is personally responsible for the business and its debts.
If you’re a sole proprietor, you can combine your business and personal expenses. You won’t feel the need to keep personal and business transactions in separate accounts.
However, you still need to keep them separate for tax purposes. You can have one checking account but make sure your business and personal expenses have correct and distinct labels.