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Do I need a business bank account?

Business credit card

When starting a business, some commonly asked questions are “Which bank should I choose?” and  “Can I use my personal bank account for business?”

In this blog, we’ll talk about:

  • Who needs to have a business bank account 
  • The benefits of a business account
  • How to choose the right one for my business
  • How many business bank accounts do I need

Who needs to have a business bank account

If you’re operating your business through a sole trader structure, you don’t need to have a separate business bank account. However, it’s highly recommended.

If you’re operating your business through a different business structure (partnership, trust, company), IRD requires you to set up a business bank account for accounting and tax purposes. 

Benefits of using a business bank account 

Although it may seem like setting up a business bank account takes more (admin) time, a separate account will save you money and time in the long run. Think about the time spent separating personal transactions from your business transactions. If you hire an accountant to do your accounts, this will also mean they will take longer to sort out your accounts, thus, a higher bill (unless you’re paying fixed costs, like with Beany!). 

Here are some clear benefits of using a business bank account:

1. It simplifies taxes

When the tax season approaches, a separate business account will help you to show a clear financial picture of your business. If you have your personal and business expenses intertwined, this means you (and your accountant) will spend hours going through bank statements, receipts, and other accounting records to find each business-related transaction. You’re not making a good use of time, but could be missing tax deductions you’re eligible for due to human error. 

Besides, using a business bank account simplifies the process of estimating how much taxes you need to pay to IRD. These taxes include GST, income tax, FBT and more. For example, if you’re required to file a GST return bi-monthly, then identifying personal and business transactions will be a regular pain every two months. Of course, you can hire an accountant or a tax agent, but this means their bills can go up too!

2. It shows professionalism and credibility

A small business often starts as a hobby or a side hustle, such as an Etsy or Amazon store. But having a business bank account adds professionalism and credibility to your business. You will be more likely to gain customer trust if you conduct business from a business bank account that uses your business name. Besides, it helps to get your brand name out there. 

3. It helps to prepare for your business’s growth in the future

You may not have had the long term growth of your business in the forefront of your mind when you first started your business but having a business bank account gives you more options for growth opportunities such as securing funding from investors, getting a business loan or line of credit

You’ll have a much easier time handling your finances when demonstrating to the potential investors or lenders as separating personal and business accounts will take a lot of work. 

4. It’s easier to track your business’s financial performance

Your business bank account can be linked to the cloud-based accounting software you’re using (e.g., Xero). Here’s how if you’re using Xero. 

For example, you can see how much and where your money comes from and where it goes in the cash flow statement. Besides, it’s also easier to complete your GST return, monthly management reports and cashflow. 

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How to choose the right business bank account

When choosing a business bank account, you should consider the following:

  • Business structure: are you operating as a sole trader or as other business structures (partnership, trust, company)? If you’re thinking about starting a business, Beany accountant can help you every step of the way from choosing a business structure. See what we can offer with Beany’s Starter Pack.
  • Fees: do you need to pay a monthly or annual fee for using the bank account?
  • Cash deposit or withdrawal limits: how much you can deposit or withdraw for fee-free? If your businesses deal in cash, you’ll need to choose a business bank account with the appropriate cash deposit and withdrawal limit you need.
  • Transaction fee: do you need to pay a fee per transaction? 
  • Exchange rate and foreign exchange fees: are you operating your business domestically or internationally? If you’re dealing with international customers, you need to consider the exchange rate and foreign exchange fees. 
  • Interest: some account pays the interest on your balance. It’s worth doing some research on how much interest you can get and if it can cover the fees you need to pay.
  • The fees that will apply to the physical business cards (and/or business credit cards).

How many business bank accounts do I need?

In short, it depends on your needs. Beany accountants recommend businesses having 2 business bank accounts:

  • Daily transactions, this is for day-to-day expenditures. 
  • Saving account for paying taxes later, for example, GST, income tax, FBT. 

Key takeaways

If you’re operating as a sole trader and running a side-hustle that’s not generating much revenue, you need to evaluate if it’s worthwhile for getting a separate bank account.  

Opening a business bank account is more obvious if you’re running your business through a partnership, trust, or a company structure as you don’t want to spend a significant amount of time, effort (and money) going through your personal and business transactions. 

Who are Beany? 

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.

Tori as a dog

Tori Ma

Performance marketer

Performance marketer at Beany, and into true crime documentaries.

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