Understanding different types of business bank account options
If you are an aspiring entrepreneur, you probably have an idea that the financial side of building a business can be tricky.
One often-overlooked aspect of starting your own company is that you not only need a separate bank account for all sorts of business-related transactions, but that there are also many different types of accounts to think about in this context.
To make this decision less daunting, here is a look at the varieties of business bank accounts on offer and the other factors to weigh up.
Accounts for processing card payments
Whether you run a bricks and mortar store or an online outlet, you will need a merchant account to receive payments made by credit or debit card.
This is important not only in terms of organizing and tracking customer transactions, but also when it comes to complying with security standards.
This type of business account usually does not hold the cash for long, but rather reroutes the money to your other accounts after the payment has finished processing.
Bear in mind that fees for each transaction processed may apply, which is why you should compare merchant accounts from different banks to see which offers the most competitive rates.
Accounts for overseas transactions
If your business operates in multiple countries, or caters to customers who place orders from elsewhere in the world and pay in their domestic currency, having accounts to cope with this is vital.
For example, opening a business bank account in Australia will help you target prospects in this attractive market, without needing a physical presence in the country itself.
Some accounts of this kind even support multiple different foreign currencies, and interest may be earned on any balance you keep in it. Fees are also payable and providers may charge more if currency prices are especially volatile.
Accounts for savings
It is not just personal savings that are worth accumulating, as businesses can be more resilient and stable if they have a pot of money kept separately to either invest in growth further down the line, or to use in a crisis.
Business-focused savings accounts are similar to those offered to retail customers. You will need to meet more stringent eligibility requirements, and you won’t be able to access the cash easily or use it for everyday payments.
However, gradually establishing a savings pot for your company will stand it in good stead for long term survival.
Accounts for all-round use
A business checking account does exactly what you’d expect, in that it functions almost identically to a personal checking account. You can use it to deposit and withdraw money as frequently as you like, and it can be associated with a payment card which is ideal for making business-related purchases when on the move.
If your business is very small, or very new, then introductory offers from some banks will include free access to a checking account that is tuned for commercial use.
As you grow, you can expect fees to be payable, since with growth comes more transactions and more processing capacity for banks to deal with.
Why do you need a business bank account?
Now that you are up to speed with the kinds of business bank accounts that are out there today, it is worth thinking more generally about the advantages that come with using these services.
First and foremost, this is a requirement of the IRS in the US, specifically in the case that your company becomes incorporated. If you want to keep on the right side of the taxman, a business bank account will be one of the steps to achieving this.
Likewise it is simply much less troublesome to keep tabs on the ebb and flow of cash through your company if you have standalone accounts that are set up for different transactions.
This is not only good for ensuring that tax returns are filled out with accurate information, but also for handling things like employee expenses claims.
There is also the sticking point of liability to consider. If you use a personal bank account for business purposes, you may be liable for any ramifications of your spending habits. Conversely if you have a business account, then the company itself is the liable party.
Once again this will keep you out of the hot water, legally speaking, and also prevent your personal credit score from taking a hit in certain scenarios.
Finally, with a business bank account you will be able to get business loans, and thus invest capital into your company so that it can grow rapidly. Lenders will only work with you if you have a business bank account, and may even ask you to set one up with them to access their products.