As a novice small business owner, you’re supposed to make a significant number of proceedings within the first few working days. As the business grows, responsibilities climb to high – so does the profit. But before going deep within the business atmosphere, you need to get hold of some key things.
These include branding your business, making a legal structure, acquiring a license, making sure the business has a suitable office as well as recruiting dedicated employees. But one of the most important things that mediocre young business owners tend to skip is the business checking account.
Yes, a business checking account is highly recommended by the business strategist. Not just because it ensures your business funds a separate identity but also it keeps your personal finances safe and secured.
The philosophy behind people’s negligence of a business checking a bank account is laziness. Yes, it’s merely laziness that stops them from opening a new account. They seem to go with their previously owned personal bank account and go like its ‘no big deal
But no one understands that the risk of merging business funds into personal transactions can bring catastrophe for both the business as well as the person himself unless the first deadly blow is felt.
So, the question is why are people still not habitual in opening a business checking bank account. Isn’t a business checking account way more appropriate than a random personal bank account for any kind of business?
Well, let’s find out the benefits of having a business bank account for small or any kind of business.
The Difference Between a Business and a Personal Bank Account
First of all, let’s consider the function of these two bank accounts and what are the fundamental differences that these two accounts possess.
Well, at the first glance, you might find these two pretty similar. Both of them function almost the same as long as making deposits, withdrawing money, making draft checks, purchases, or use of a debit card is concerned. Similarly, both have overdraft protection on offer and feature online banking.
There goes the basic similarity. Now let’s quickly talk about the key difference between them.
Employee Debit Cards
As you can see from the name of the feature it should go with something commercial only. So, most business bank accounts let you order debit cards for your employee. This’ll allow your employees to make purchases and transactions using the business checking bank account.
Well, don’t think about the loss of money from your account because this credit card also comes with features that can limit excess for your employees individually so that they can’t withdraw all your money and fly away.
Monthly Fees and Balance Requirements
This is another key difference between these two accounts. A personal bank account doesn’t require any monthly fees or any minimum balance requirements. On the other hand, business bank accounts have monthly fees and a minimum balance requirement typically.
However, there are a lot of business checking bank accounts that come with additional offers of no balance requirements in cases as low as only 5$ per month. Also, you can avoid monthly fees if you are capable of making a good number of transactions using the account.
The Process of Setting up Accounts
As the business checking account deals with other parties on your behalf, this comes with additional responsibilities. This is why it requires a little bit more paperwork than any personal bank account.
You might need to provide the validity of your business license, your employees’ SSN or EIN, and other legal documents of your business to set up the business bank account. Though it might sound hard in the end it’ll surely bring fortune for you.
Why Should You Use A Business Checking Account in Place of a Personal Checking Account for Your Business?
First of all, if you wanna establish a rhetorical debate, then I must tell you to find the irony behind the name of these bank accounts to feel the urge of using the bank accounts in their dedicated sectors.
Well, I admit that the world doesn’t work based on a rhetorical debate always, and neither should it. You need facts. So let me present you some facts if you are seeking for some reason before choosing a business bank account for you in place of a personal bank account. There are some basic requirements to open a business bank account, which might fit you.
Safety of Personal Funds
Besides any other legal benefits, the safety of personal funds is the basic aim of opening a business checking bank account. You don’t want to risk your personal funds to be merged with your business income, do you? I bet you don’t.
You may remain completely unaware of the fact that behind the door you are losing your personal assets while paying to your people. This might not be identified immediately and you’ll have to scratch your head at the end of the month. So, it is better to use two separate accounts for safe banking.
Legal Benefit
Say, you are operating your business under an LLC or a corporation. This means that your business has a separate entity and is completely separate from you. Having said that, you are now legally required to separate your business’s finances from your personal funds.
This is the time when you need to set up a business checking account as many banks require a business bank account when you are acting as an LLC or an independent business corporation. Besides, your personal bank account might get suspended if you use it for business purposes.
However, if you are a sole proprietor, you don’t need to make a transition using a business checking bank account. But if you think from a professional standpoint, it’ll surely boost you up and help you overcome any legal trial that you might face.
Precise and Easy Bookkeeping
It’s a matter of annoyance if you end up combining your business and personal transaction into a single bank account. You or your accountant will need a bigger portion of work hours for merely sorting them out as you need to identify business incomings to pay your taxes at the end of the year.
Audit implications
Don’t forget that account that goes with your business could be audited from time to time by the government. Unfortunately, they won’t consider your personal activities of the account as personal anymore and it may end up bringing misfortune for you as you need to answer about the transactions.
Business Vs. Hobby
Well, business means professionalism. When you use your personal bank account for business purposes, it only proves that you are either taking your business as a hobby or not putting enough effort into it. So, better prove that you are running a legitimate business to earn some faith.
Build your professional business brand
A business checking bank account is a sign that you are not just doing business but also on your way to building a professional brand. Having a professional bank account will promote the name of your business as you need to write checks to buy inventory for your business.
Also, it looks quite odd to use a personal bank account to make transactions for your business. On the other hand, your clients will feel insecure if they see someone else’s name in the bank account instead of the name of the business itself.
Credit card payments
Sometimes you might need to accept payments from clients through credit cards. This feature actually doesn’t come with a personal bank account unless you add extra features to it, which is quite expensive in terms. So, a business bank checking account can easily solve the case for you.
Secured Encryption Ensures Inner Peace
After a long day at work, everyone deserves a good sleep. But, the lack of a secured business checking bank account can cause your inner peace to fade away. Because your business requires a large number of transactions, it needs to be equipped with secure encryption.
Since business checking bank accounts come with a higher security system than any personal bank account, the chance of a successful fraudulent attack is minimized. So, a business bank account can ensure the safety of your valuable earnings.
A Friendly Hand
Your business won’t be stuck in the same periphery. Gradually it will grow bigger. Since a dedicated business checking bank account helps your business to create a strong relationship with financial organizations, it opens the door for any incoming investment.
Besides, it gets easier for you to apply for any loans once you possess a well-established business bank account. On top of that, you can easily access other services related to business from third-party organizations to grow your business faster.
Do you need to make a profit to open a business checking account?
No, you do not need to prove that your business is earning money to open a business checking bank account. The bank doesn’t care about your profit or loss from the business. All you need to do is provide them with some legal documents to validate your business’s identity.
To be honest, opening an independent business checking bank account is regarded as the first move for a business even before starting any sale of financial transactions. Because this is the platform that you are gonna use to transfer funds between parties.
But you should keep in mind that some of the small business checking bank accounts might require a minimum opening deposit. However, they won’t be investigating where that money comes from. Besides, you can also choose alternative banks that require no opening deposits at all.
