Opening a Business Bank Account
If you’ve decided to work from home (and in doing so intend to earn some money – which I assume is the idea) it might be a good idea to set up a separate bank account purely for your home business. All monetary transactions can then be directed in and out of this account.
Opening a business bank account may not be something you’ve thought about doing at this stage but, as in many situations, it’s easier in the long run to set things up correctly from the start. Having said that, you don’t want to get carried away and set up an account with more features (and costs) than you need. More about that further in the blog.
The main advantages of opening a business bank account are:
- You can keep track of how your business is doing financially
- It will make your life, and your accountant’s, much easier at financial year end
- It shows that you are serious about your business and improves your credibility with people you deal with
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It helps confirm to authorities that you are actually in business
How much does it cost Opening a Business Bank Account?
You’ll generally have to open a new business account with some money. How much you initially put in will of course depend on what your expected start up and running costs are likely to be be. But, remember, whatever money you put into the account from your personal money is in effect a loan to your business, which you can take back out at a later date, once your business is making money.
Check out the different types of business accounts that are available and shop around with different institutions to find the best deal for your circumstances. Don’t sign up for an account with more features than you need as you may find yourself paying for things that don’t give your business any value or benefit. Some banks charge fees for merchant services that may be useful and relevant when you’re making $000′s, but are over the top when you first start out. Go give some thought to how your home business will initially function and choose the right account for you. You can always update at a later stage, if necessary.
Things to consider might include:
- What will your customers want? What’s the most likely way you will be transacting with them?
- Do you need to be able to accept credit card payments or will an online service such as PayPal provide that service?
- Is an overdraft facility necessary or can your own funds keep the account in the black and cover costs until you start making profits?
- Would you be better to choose an account with a set monthly fee and free transactions, or pay for each transaction and pay no monthly fee? Or a combination of both?
- Should your business account be with the same bank/institution as your personal account? Would this make it easier to transfer money between your linked accounts? Do transfers between linked accounts cost anything?
In the early months of running a business you may need to keep topping up your business account from personal funds. By doing this through the bank account there is a permanent record of the money going in – so you won’t forget how much the business owes you, once it starts making a profit.
Credit Card Transactions
Having a separate credit card for your business may be the best option for you, but there is no reason why you can’t use your personal credit card for business purchases. If this is the case, make sure you split the payment between personal and business at the end of the month when you pay the bill. If the total bill is, say, $1,000 and $250 of that amount is for business purposes, then make sure the $250 is paid directly out of your business account. This can be done by writing a business check, phone banking, internet banking or however you usually pay your credit card. I am of course assuming you always pay your credit card off in full – which I hope you do. Remember, if you don’t, you’ll also need to work out how much of the interest next month has come from the business related spend – and that’s starting to get complicated! Better to just pay it off in full if you can.
Money Received – Money Spent
Any money the business receives should go straight into the business bank account, whether it be cash, check or money received via internet banking. Likewise, any money the business has to spend should be done via the business account either by check, internet banking or credit card (mentioned above).
Petty Cash
There will often be small items you need to buy for your business that require a cash transaction. For this reason, it’s a good idea to have some petty cash to use specifically for business purposes. Again, this should be done via the business bank account. Draw out, let’s say, $100 cash from your business account and keep it in a safe place. When you need to buy small items, use this cash and keep all receipts to account for the expenditure. If the petty cash funds are running low, draw more cash out from the business account to top it up.
Book Keeping
Book keeping will be all the more easy to do when all your monetary transactions are in the one place – your business bank account. If you choose to employ the services of an accountant at financial year end, then you’ll make his/her life easier as well, which generally means a smaller bill, which has got to be a good thing.
Future Blog
I’ll be writing about Book Keeping for your Home Business in a future blog. It’s easier than you think, and it will keep your costs down and make your accountant even happier! But the first thing to do is open a business bank account.
Thanks for reading my opening a business bank account blog. I hope you’ve enjoyed and learned from reading it. Please send me your comments below. Thanks.
2 Comments July 29, 2009
