What Is A Business Account And Why Is It Necessary For Every Business Owner?
If you are running a business, you should have a business account for seamless tracking of cash outgo and inflow. A must-have for Indian startup founders, having a business account is a safe way to ensure that there are no erroneous transactions taking place.
Read on to know why opening a business account is important, how it works and more.
What is a Business Account?
A business account is a bank account for people who own and run business. It is a current account opened by business owners and proprietors to monitor the flow of money in their business systematically. There are several types of business bank accounts. They depend on which kind of business you own.
Through a business account, a business owner can monitor cash balances, pay their employees, and keep an eye on the amount of money owed to the business and other creditors. A business cannot function even for a day without a proper business account.
Who Should Have a Business Account?
A business bank account is for people who have or want to have a small business. Start-ups are mandatory to open a business account. This is necessary to ask for monetary help from financial institutions.
Let us take a look at who can open a business account.
- Individuals
- Proprietorships
- Partnership Firms
- Companies
- Foundations/Trusts/Societies
There are many reasons why you need a business account. A business account would be a starting point in managing your business correctly if you are a new business owner. Let us look at some other reasons for opening a business account.
- For receiving and paying money relating to business operations
- To conduct monetary transactions in a unified manner
- To borrow money from a financial institution as seed capital for the business
- To safeguard your business funds from being stolen or embezzled
- Having a streamlined process of business operations which is necessary to add to the professionalism of the industry.
Also Read: Salary Account Vs Savings Account: Key Features And Differences
How do Business Accounts Work?
A business bank account works similar to that of your savings account. The only difference would be you could open a business bank account only for business transactions. Just like a normal bank account, you can use your business account to pay employee salaries, bills, purchase raw materials, etc. Here are some of the features of a business banking account:
- Like a typical bank account, a business account allows businesses to pay salaries and bills and purchase raw materials and inventory.
- It also helps the business owner save money as a contingency fund for business-related emergencies.
- Companies engaged in eCommerce can use a business account to receive payments seamlessly and safely.
- A business account also works for a firm that solely deals with imports and exports. It acts as a gateway for sending and receiving money from overseas.
- A business account would be a stepping stone toward building a commercial empire for small-scale start-ups.
Benefits of a Business Account
Business accounts have a variety of advantages for businesses. Here are a few of them:
- Line of Credit: A business account provides the benefit of a line of credit for account holders. This may not be the case with every bank. However, most banks let account holders borrow money whenever they require it. This credit facility is meant for emergency business purposes only.
- Ease of Purchase: Purchase protection is a concerning issue with business customers. It means that the information customers provide when purchasing must be protected against theft or misrepresentation. A business account streamlines the purchases of a business securely so that customer information is not leaked to criminal elements. This is made possible with the facility known as a merchant account, provided by major banks.
- Protection of Liabilities: Every business has liabilities that must be kept in check. A business bank account makes this possible by separating business funds from the owner’s personal funds.
- Safety of Funds: The most crucial benefit of a business account is its ability to keep your funds safe from being exhausted unnecessarily. The inflows and outflows in a business are subjected to theft and many other forms of loss. A business account eliminates the risk which your business funds might be in.
- Transparency: Another benefit that business accounts have is of being transparent. Every sale and purchase is accounted for clearly when you operate your business through a centralized bank account. There is no scope for financial delicacy with a business account.
Types of Business Account
Following are the different types of business accounts:
- Merchant Account: A merchant account is a business account meant to monitor all the receivables and payables relating to your business operations. A merchant account is the most common type of business account. It allows business owners to conduct card payment transactions with ease. Merchant accounts are most preferred by eCommerce businesses and those that primarily accept debit and credit card payments.
- Checking Account: A business checking account lets you do business-related financial operations. The day-to-day transactions, payroll, and payments are all handled by a checking account.
- Business Savings Account: A business savings account is a standard savings account that helps the account holder build a fund pool to handle their business operations. Most business owners have a savings account on top of a checking account. This provides them the opportunity to save personal funds apart from that of the business.
- Payroll Account: As the name suggests, a payroll account is set up to pay business employees regularly. Most commonly, payroll funds are transferred from a checking account to a payroll account every month at the time of salary distribution. This is done for tax purposes so that the business does not lose excessive funds.
How to Open a Business Account
Follow the steps given below to know how to open a business account:
- The first step would be registering your business under the Companies Act, 2013 as a legally-operating business.
- The next step would be to apply for licences under various government agencies for commercial businesses such as income tax, customs, etc.
- After receiving your business license, go to the online portal of a bank or financial institution with which you want to open a business account.
- Submit the form along with the required documents. You can upload all the KYC documents online and submit them physically in person at the bank’s branch.
- After receiving the documents and application form, the bank or your preferred financial institution will verify every detail. If everything is in place, your account will be opened.
Documents Required to Open a Business Account
Following are the documents required to open a business account:
- Identity proof in the form of a PAN card or Aadhaar card
- Address proof in the form of a water bill, electricity bill, etc.
- IT returns
- Business address proof
- Certificate of Business Incorporation
- Passport-size photographs
- Details of an existing bank account
- An account opening cheque
- Current business licence
Also Read: What Is A Business Credit Card And How To Apply Online?
Things to Remember While Opening a New Business Account
It would help if you remember the following things when opening a new business account:
- Make sure you have registered your business legally under the government act.
- When opening a business account, submit correct information and documentation to the bank.
- The location of your business account must be in the city where you are currently commencing your business.
- Before selecting a bank or financial institution for a business account, know all the perks and incentives you will receive with the account beforehand. These may include credit lines, loans, credit card facilities, consultancy services, etc.
- Some banks charge additional fees for offering fund transfer services. You must know about any such charges beforehand.
Final Word
A business account aids a business owner in maintaining smooth commercial operations. The facilities vary based on the type of business account you choose and the financial institution you have opted for to open an account.
FAQs on Business Account
Ans: The best time to open a business account for any business owner would be before receiving payments. It is recommended to have a business account before dealing with receivables and expenses to have a secure avenue for all the finances.
Ans: You can opt for a merchant account regardless of the nature of your business. A merchant account is equally suitable for an import-export business as for any other commerce type.
Ans: A business can decide upon having or not having a payroll account as per their requirement. It is not a mandatory obligation to have a payroll account for distributing salaries to employees. The task can also be done through a regular business checking account.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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