No matter what type of business you operate, it is likely you will need to open a bank account to keep business income separate from personal or other types of income. A bank account in the name of the business gives transactions certain legitimacy. Business bank accounts have different features, however, that depends on the way the business is legally formed. Here are 6 interesting reasons why it is essential to open a corporate account:
1. Safe Accounting: As a start-up, it is vital to account for every naira to effectively help you track your business activities and analyze what expenses to cut down on, what areas need more investing, what revenue stream yields the highest income, and so on. It is also important to keep all invoices and receipts, to account for every business transaction carried out using the corporate account.
2. Professionalism: If you were doing business with someone and they paid you with a personal check, you’d think they were a little unprofessional, or not even a real company – right? How your business funds are managed, directly impacts the corporate image of your company. If you are writing a check to a supplier or receiving money from a customer, it is important for checks or deposits to be addressed to your business name. Additionally, it will be a hassle managing the inflow or outflow of cash, if your business and personal finances are not kept separate.
3. Empower your employees: If the weight of making deposits, signing debit card receipts and mailing checks is becoming too heavy, a corporate account gives you the option to delegate some daily tasks to your trusted employees.
4. Managing Expansion: With a business account, you may choose to allocate money to pay employees as your staff increases in size. You can also use your corporate account to partner with other businesses, or use it for mass payments. Whatever the case is, it is convenient to transact transparently to monitor growth in your venture.
5. Loan Accessibility: As a start-up, potential investors must perceive that your venture is running smoothly and effectively. Whether it is a bank loan or a private equity investment you are aiming for, opening a corporate account will increase your chances of accessing loans. This is because your investors can better track how the business has been running till date, before making any long-term commitments.
6. Tax Audit: Combining your personal account and business account is asking for more trouble than you’d think. Ultimately, combined accounts make it harder to stay on top of your books come tax time. When your start-up becomes operational, there is need to open a corporate account to keep your accounting transparent for the purpose of external auditing. It will determine whether or not you should be paying taxes to the government.
The most important thing to realize here, beyond the fact that you should separate business and personal finances,is that you should perform good business habits right from the start.
Like a golf swing, if you start out with bad habits, it’s very hard to start over and get to where you really want to be and as your business grows,it’s crucial to build a proper legal and financial foundation.
Opening a separate bank account is one small step in that direction, and will help keep your books organized, as well as ensure your business and personal lives remain separated. In addition, opening a bank account will help form your business’ credit history which is a big milestone should you ever want to take out a business loan or line of credit in the future