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DQ News: 7 Things Businesses Should Know Before Opening A Business Banking Account

Anyone who is in business is usually trying to stay afloat in this recession and concerned about keeping costs to a minimum.  Running your business income through your personal account may seem like a great idea, however, there are some things you should be aware of.

Income Taxes:

Keeping your business income and expenses separate is a must come tax-time.  Being religious about keeping these separate will make life a lot easier down the road.  If it isn’t a business expense, then you won’t use your business checking. Simple as that.  Business is for business, personal for personal and never shall the two meet.

Figuring your profit and loss, balance sheets and tax returns will be a breeze, especially if you use accounting software such as Quicken to track your business checking account.  Everything is automatically put into the right categories for you so you can examine monthly, where your biggest expenses are, and where you can minimize expenses.

Better Money Management:

Having a business account helps you budget, because if you don’t use it for personal reasons, there tends to be funds left over at the end of the month.  You can transfer from business to personal when needed, and even that is a write-off.  Everything that you run through your business will become a business income or expense and therefore much easier to see where your hard earned cash is going.

Professionalism:

The more you act like an established business, the more you will be perceived as a successful business.  Having a business account will allow your clients to perceive you as a professional.

Having a business account, business cards and a professional answering service will give you a means of business credibility and representation, as well as give you the confidence to land more clients.

Business Account Uses:

When you open a business account, money can be allocated for investments, partnerships and make business payments, keeping your business credit optimum.  If you have employees, paying salaries from a business account is mandatory, especially if you have a corporation, or LLC.

Business Account Benefits:

Business accounts at major banks offer benefits such as special discounts on business products, and special promotions.   And, there are perks such as sub-accounts, direct and free connections to personal accounts, the ability to obtain better rate credit cards and financial rewards.

Type of Business Account:

Each financial institution is different, however, there are many choices that should be considered when opening an account.  How many checks do you write, how much income is run through the account monthly? What is your average balance monthly?  These are things that should determine what type of account you choose.

There are small business accounts, which offer new and smaller businesses a business account with no fees.  Some accounts offer no fees if you keep a specific balance or a specific amount of checks are written, so make certain you look closely at the options.

Risks Involved:

The times when business is slow, finding yourself with insufficient funds can cost you a fortune with a business account.  The fees are escalated, which makes matters worse, and your business associates could lose confidence.

Also, because you have a business, banks tend to see you as credible and offer you business loans, especially if your credit is worthy.  These loans can escalate when times are slow, and end up costing you more than you make just paying them back.

Disadvantages:

Usually, interest-bearing accounts offer less interest on business checking than a savings account.  And, there are fees associated with a business account that are not charged with a personal account or savings.

• Overdraft fees and interest rates are higher for businesses.

• If your credit is iffy, your ability to get a business account may be jeopardized.

• Opening a business account requires a lot of paperwork, and the approval process is sometimes tedious, and time consuming.

Conclusion:

Essentially, the benefits outweigh the disadvantages, and having a business account is sometimes a necessity in keeping your accounting straight, your tax information handy and to allow the clients you work with to see you as much more worthy when writing checks made out to your business, instead of you personally.

Business accounts lend credibility, especially to a new business.
About the Author: Ally is part of the team that manages How To Save Money, a personal finance blog that wrote about How To Save Money On Your Food Indulgences. Before joining BS, she was a Media Planner with McCann Worldgroup Philippines, Inc., with award-winning executions, including the Levi’s 501 “Live Unbuttoned” global campaign.

Photo Credit: kenteegardin

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