If you are a business owner, you might have encountered the term ‘business account.’ Many businesses link their personal accounts for their business transactions when they start. This can be convenient in the beginning but can be a hassle later.
A business account is a dedicated account for your business transactions that helps you streamline all your company’s payments and bills. It separates your personal spending from your business spending. Having a business account is extremely beneficial for your business, whether it is on a small scale or a large scale. However, if you are still unsure about how the two are different, read the following to learn more.
Major differences between a business account and a personal account-
- Different structure:
As mentioned above, a personal account is used for personal spending, while a business account is for holding, receiving, and transferring your company’s funds. Both kinds of bank accounts give you a debit card; however, a business account separates your savings and checking accounts. A personal account has limited controls, but a business account may enable additional features for business owners, like adding permission settings for employees to use the funds.
The minimum deposit and maintenance charges of both accounts will also differ since they both offer different services. A business account helps streamline business operations and payments for business owners.
- Mode of payments:
There are usually multiple modes of making and accepting payments in both personal and business accounts. These days, electronic money transfers have become more common and are especially useful for businesses. However, if you want to accept credit card payments, a business account becomes necessary. You cannot accept credit card payments from customers on your personal account.
Furthermore, having a business account will be most useful in providing easy and convenient payment options to your customers. It will also help you understand your earnings and profits clearly.
- Banking tools:
At some stage of your business or even initially, you might have to raise funds from a banking institution. With a business bank account, many banking tools and services open up for you which might not be available to a personal account holder.
There are business-specific loans and credit cards that might become available to you only after opening a business account.
Since a business account holds all the financial records of your business, its growth, and its profits, it might be easier to show your credit score and other company performance indices to secure a loan. Some banks make it compulsory to have a business account before clearing a business loan.
- Tax-related services:
Tax filing is an important duty of yours, whether you are an individual with a personal account or a professional with a business account. Especially for the sake of your company, you do not want any hassles when it comes to tax obligations.
When the tax season is around, a business account will have all your finances consolidated in one place which will make the process hassle-free for you. Audit runs will become much simpler and your finance department will be at ease. On the other hand, a personal account will have different obligations and services related to taxes.
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- Foreign transactions:
A personal account will allow you to send and receive money in foreign currency but there might be a limit on the transaction amount. Depending on the bank, the services offered will also differ. If you are a business with a global presence or trying to go international, you will need a business account for foreign transactions.
With a multicurrency business account, you can even send, hold, and receive money in different currencies through one bank account without having to worry about conversion fees and exchange rates. This might not hold true for individuals with personal accounts. When it comes to international trade, rules and regulations for businesses differ.
- Benefits of business account:
As a business owner, there are many benefits to having a business account. It separates your personal finances from your business finances. With a business account, you can streamline all your company’s financial activities, such as merchant payments, invoices, employees’ salaries, bonuses, etc.
It allows you to obtain a business loan, helps you file your taxes, and consolidates your financial data for audits and credit creation. A business account is a very important expense management tool for your company and a must for its growth and development.
After learning about the differences between a personal and a business account and comparing their structures, pros, and cons, you should be better prepared to choose the one that works best for you and your business.
