Business owners often struggle with answering the “when?” question, concerning opening business accounts, it is a misconception that your business ought to be a “decent” size before you open a bank account.
Business owners often struggle with answering the “when?” question, concerning opening business accounts, it is a misconception that your business ought to be a “decent” size before you open a bank account. This is inaccurate, besides being one of the obvious proofs that you are a business owner, it is also very important to keep business transactions separate from personal banking transactions. Therefore opening a business account is one of the initial steps to take when starting a business
Here are a few reasons why you should consider having a business bank account:
1. Efficiency In Book-keeping
If rapid growth is anticipated in the first year of operation, you cannot afford to run a business from a personal account. Things like bank statements may start to get messy. The complexity and volume of transactions will make it difficult to track payments from the account, which, by consequence, can make it difficult to track growth. These transactions must be documented in great detail, therefore a separate bank account for your business is essential to not only the growth of a business, but it helps save time by making expense tracking easier.
A business owner that has a separate business account is viewed as a professional and will be taken seriously, especially when it comes to managing the business’s finances. Sending out invoices and payment receipts or just generally making transactions from a business bank account assures customers that the business venture is legitimate and trustworthy. This would help to establish brand credibility and would suggest an underlying dedication to professionalism. This is very important for a brand identity, especially for SMEs (Small and Medium Businesses).
3. Accepting Debit Card Payments
A business bank account is required to accept bank card transactions on the business’ point of sale system in Nigeria, especially if it is a retail business. If an entrepreneur does not separate business and personal accounts, they can be personally liable for the actions of the business (not limited to financial transactions)
4. Partnerships and Incorporation
When a business venture has grown to the point where it would need to enter into a partnership, at least one of the partners will be handling financial transactions for the business. A business bank account is required for that to be possible. This simply cannot and should not be done with a personal account. Similarly, if the business is incorporated, others may be needing access to the business bank account. There are also legal ramifications for sharing access to an account. Since a corporation is viewed as a separate legal entity from its owners, it must have its bank account.
5. Obtaining Loans
To obtain loans for a business in Nigeria, it is expected that the business has its own separate bank account, loan providing bodies not only look out for registered businesses but for this as well. As mentioned above, it shows dedicated professionalism and organization. A business with a separate bank account is more likely to be given a loan, than one without.
6. To Protect The Owner’s Identity
Since the business account will be used for a large number of transactions, the risk of fraudulent activity or identity theft will be higher, if it is a dedicated business account, the damage can be limited to the account alone.
7. Business-Banking Relationship
As a business grows, it must have a functional relationship with its bank. For instance, a dedicated account may be set up to handle the payment of income, sales, or payroll taxes. A relationship might be built with a bank for the purpose of credit etc.
8. Simplification of Tax Payments
When it comes to paying taxes, separating business and personal expenses can get complicated, especially if a tax preparer is contracted, besides being a cumbersome task for the preparer, business expenses, and their tax deductions may be missed entirely as a result. These eventualities may cause the business owner more money in billable hours for the preparer and avoidance of deductions for business transactions. Having a business bank account will eliminate these kinds of problems and the business owner would have more money at their disposal.
The importance of having a separate business account cannot be overemphasized. From the points made above, we can say that business owners must open separate accounts for their business ventures, to make official business transactions more efficient and to track growth seamlessly. Having separate business accounts not only makes a business owner seem more professional, but puts the business venture in a stronger position to get loans, have tax deductions on business transactions, and have better chances of being incorporated. Business accounts are therefore pertinent to the overall success of the business venture.