It is essential to have a business current account, it actually may be smarter to have more than one account.
There are many reasons for this, including security concerns and having the ability to track expenses.
Setting up a second account can also be an opportunity to change banks, which might be a good idea if you can get a better deal with a different business banking provider.
Sometimes the money in your account is not really yours. Your bank account might seem flush right now, but how much of it is reserved to cover quarterly taxes, invoices that you would soon need to pay, or payroll?
It can be easy to take money out of the account, feeling like your business is doing really well, only to find you don’t have enough funds to cover these critical expenses when the need arises.
Having a separate account — an interest-bearing savings account is a good idea here — can help you make sure you always have enough to cover your expenses. If you have contractors working for you on projects, as soon as you get paid on an invoice, set aside what you would have to pay them for that work. Also save about 20 per cent of your profit to pay your taxes so you are not scrambling to pay a hefty bill.
It may take some practice to get into the habit of setting money aside long before you need it, but it will keep your cash flowing. After all, issues with cash flow is one of the top reasons businesses fail, so set yourself up for success with this financially healthy practice of saving money. And it can’t hurt to set up payroll software that handles taxes and makes all expenses clear ahead of time.
Different accounts serve different needs
Your money serves different functions: There is the money you bring in, the money that goes out to pay the bills, and the money you set aside for a rainy day or to expand your business down the road. Lumping it all together into one account can make it difficult to have visibility into what is what.
A solution here is to have one account for receiving payments and another for paying expenses. In addition, you can have a savings account for the future. This makes it easier to track expenses as well as observe revenue trends, which is all useful data when it comes to updating your business growth strategy.
This is a big one. While the chance is low, there is a possibility of someone hacking your bank account to use it to pay for things. A person with your routing and account numbers to charge your account can pose a risk. Here is a scary story (the names have been changed):
Recently at my company, we noticed an unexpected and unapproved charge from A Bank to our account under the name ‘Mr X’. It took a little legwork, but we got the bank to reverse the charge. A few weeks later, we saw another charge from Mr X, this time to B Bank. It seemed this individual was paying credit card bills using the company account. When we called the bank and asked if they could block this person from making fraudulent charges, we were told that they could block A Bank or B Bank, but not the individual.
So we had no choice but to shut down the account and open a new one. This was a hassle, because we had about 50 vendors who would pay invoices that got deposited into this account, and there were several payments set up to be drawn from this account. As a result, we set up separate business accounts for outgoing and incoming payments so that in the future, we won’t be reliant on one bank account for all transactions.
One thing to note: all the information someone needs to attempt to pay bills with your account is found on every cheque you write. Horrifying, isn’t it? But if you use your bank’s bill pay system, this information is not included, so your account data is protected.
Ask your bank about setting up protections on your account, such as limiting withdrawals or flagging unusual transactions. This will at least notify you immediately of any suspicious activity before it drains your account.
Setting up multiple bank accounts is easy, and this tiny effort can end up saving you in a major way. Consider what the flow of money looks like for you: Maybe you want all payments to go through a payment system, and then you transfer those funds over to your bank account elsewhere that you use to pay the bills. Having a savings account for money you don’t need right away is a smart idea so that you have got funds should an emergency — or opportunity — arise in the future.
Above all, keep an eye on your accounts. Not only do you want to be aware of any potential fraudulent charges, but you also need to keep tabs on where your money’s going and what your expenses look like.