Embarking on the journey of starting a business is an exciting one, but equally as daunting. Every founder will face a maze of paperwork and financial decisions especially right at the start of getting set up. One thing that is often overlooked is properly setting up a business bank account yet it’s so necessary to have.
And if you are opening more than one entity at the same time, things can get complicated very quickly. Should each business have their own separate account? Can you use one account for them all? Where do subsidiaries fit in?
Business bank accounts to consider include:
These are all valid questions you should be asking as a founder, so let’s walk you through what you need to know.
Can You Use One Account For Multiple Businesses?
They say that you shouldn’t mix business and personal accounts but quite honestly, you shouldn’t mix business and business either. It might be tempting to use one business account for all of your ventures – or worse, your own personal account – because it may seem easier in the beginning.
But down the line, it can cause a lot of hassles that you could avoid.
Tax: If the income and expenses of every entity is running through one account, it would become an absolute nightmare to try and separate when tax season rolls around. It’s enough to send an accountant running in the opposite direction.
Lack of clarity: When all of your funds are mixed together, it’s difficult to see how individual businesses are performing. This limits your ability to make proper financial decisions.
Credibility: Every entity that you have will have its own set of clients and investors. Having a dedicated account for each one will add to your professionalism instead of having everything jumbled together.
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How To Set Up Accounts For Multiple Startup Entities
Since every business that you register should have its own account for handling finances, here is a step-by-step guide on how you can set them up.
Determine Your Business Structures
The way in which your accounts are set up are largely based on your business structures. If you start two companies in two different industries but both are registered as as a Limited Liability Company (LLC), both need their own bank accounts and tax numbers.
If you are certain that you will have multiple entities, it might make sense to consider creating a holding company. Each startup will then become a subsidiary with their own sub-accounts.
Get The Right Documentation
Banks have stringent requirements when it comes to opening business accounts and in a case where you are setting up for multiple entities, you will need to repeat the process for each one.
Generally, you will need to produce the registration documents for each startup, each individual tax number, proof of address and the ID of the owner or of every owner if you have more than one and a business plan.
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Choose A Banking Setup
Most entrepreneurs will choose one of these three ways to structure accounts for multiple businesses.
Separate account for each entity: This option gives you the most clarity and up-to-date records. However, it is a bit more admin on your end with more fees to pay and cards to keep track of.
Main account with sub-accounts: Some banks offer this method and it is easier to manage. You can also get a full overview of every business. But it doesn’t always work if your startups have different legal structures.
Holding company account: With a holding company structure, finances are all run through the main account and then funds can be transferred to each subsidiary. It gives founders more control but subsidiary finances could get mixed up.
Look At FinTech Business Account Options
FinTech banks such as Revolut and Wise are an alternative to traditional banks who are usually quite strict. Some of them allow founders to open multiple accounts digitally with sub-accounts and unique account numbers for every business that you have.
In some cases, this route could be more affordable especially for entrepreneurs on a tight budget with limited financial resources.
A Few Common Mistakes To Avoid
When it comes to opening a business bank account for your startup, it’s easy to make mistakes. The main one that happens all too often is taking a shortcut by using one account for everything. Sure it might feel easier in the moment, but it will cause endless problems both logistically and legally.
Some founders also forget to budget for bank fees and keep in mind that when you have multiple accounts, each one has their own set of monthly charges. Make sure to work this into your monthly startup budget to avoid any missed fees and penalties.
Also remember to do your research on the bank before you proceed with opening one or multiple accounts. Some banks offer tailored solutions specifically for startups while others don’t. Working with a bank that understands your startup needs can make the process much smoother.
