Mohammad Khan Yusufzai is Masters in Management, specializing in Economics, Finance and Marketing, with corporate & lectureship exp.
Starting a small business is tough. Problems you never imagined start to pop up one after another. Limited resources, time constraints, insufficient manpower, and managing finances are just a few of them.
Did you know that 29% of business failures are due to insufficient capital?
Finance is the backbone of any organization and it is where most start-ups struggle at.
So, Let's look at how banking simplifies the issue of managing finances for small business owners
What Is Business Banking?
Business banking refers to all the activities that involve the financial dealings of a business with a banking institution. This includes a list of features such as loans, credit, savings & checking accounts, designed specifically for businesses rather than for individuals. It also offers other banking products such as commercial loans, deposit accounts, and non-interest-bearing products, credit card services, real estate loans. Some banks even offer securities underwriting facilities and asset management to their account holders.
Personal Banking vs Business Banking
Business banking is meant solely for transactions that are related to businesses, such as unlimited transactions, overdraft facility, cash management services, online checks, and payroll checks. Meanwhile, Personal banking is meant to serve individual needs such as savings, online banking, and a limited number of transactions.
Let's try to understand the major differences between the two with the help of the following table.
|Parameters||Personal banking||Business Banking|
Nature of Services
Profit Margin is less
Banks earn high profits through these accounts
Number of transactions
Number of transactions is limited
Number of transaction is high or unlimited
Used for personal banking only
Meant for commercial purposes
Overdraft availabke subject to some conditions
Utilities of a Business Checking Account
These are some of the advantages of getting a separate account for your business:
Better Organization of Finances
When you open a business account, it allocates a separate place for your finances. Money received from customers or sales revenue will directly go into your business account rather than your personal account. This separation of finances helps you keep better track of your expenses, inflows, and profitability.
Efficient Tax Management
A dedicated account makes it easier for you to identify and track all your tax-deductible expenses, which will come in handy at the time of filing tax returns. With all your spending available in a single place, you can easily consolidate all your tax-deductible charges. These charges may include utility and marketing costs, loan interests, insurance and inventory expenses, etc.
Separate Bank Account Offers Better Legal Protection
Although Companies enjoy legal protection more but You can also defend yourself from any legal action if you are unable to pay business expenses/debt through a business account. A separate bank account will help you to prove that it exists purely as a separate entity, unrelated to your personal finances.
Payment Solutions and Payroll Management
Several Banks offer added ready-made solutions along with their banking accounts. These especially helps small business and start-ups in getting automation in their operations, such as Online B2B payment, B2C payment, and payroll management software. All the major banks (such as Bank of America and JPMorgan Chase) offer such services. And the rise of completely online platforms (such as Online Checkwriter and ZilBank) proves that these services are a huge success.
Helps in building credit.
One major problem that small business owners face, particularly new ones is to get eligible for loans. A dedicated checking account will be a great help for you in that case. Some small banks also offer you loans if you open a new account with them. However, as the case with startups, credit card operation and credit limit might still be dependent in part on your own personal credit score.
How to open your business checking account?
Finally, let's go through all things you will need to open your account.
1.Your Personal Identification
To open a business account, your bank will need at least one government-issued identity card such as a passport, Social Security card, or driver's license (this number may increase depending on the type of your organization). You may need to give other information such as Your date of birth, address, and contact details as well.
2.Employer Identification Number
If applicable, you also need to provide an Employer Identification Number and necessary documents from the IRS. But in the case of the sole proprietor and Single-member LLC, your Social Security Number will suffice.
Such as the name, address, and type of your organization, the industry you are in, your sources of funds
4.Opening deposit and minimum balance requirements
Usually, Banks require an opening amount deposit to open your account. This can range anywhere from $5 to $5000. However, some banks offer an account with zero initial deposits.
Hope that you got some idea regarding what bank can offer to your business and you can now decide what to expect from while choosing a bank for your organization.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Mohammad Khan Yusufzai