Do Startups Need A Business Bank Account?

Having a business bank account isn’t a prerequisite for starting a business. It’s not a blanket legal requirement, other than in a few specific cases, and generally, deciding for or against a business bank account comes down to a few specific factors that each ought to be considered according to their own merit.

In the most basic sense, business bank accounts are specifically designed for use by businesses. They provide account holders with features that are particularly useful for business owners, including things like higher spending limits and options for professional bank loans, among other things.

So, there are many reasons why business bank accounts may be ideal for business owners who can take advantage of the added features and benefits that they offer.

However, some businesses may not be able to benefit from these accounts in the same way. In fact, there are situations in which opting for a business bank account over an ordinary personal account for professional purposes may be disadvantageous. It all depends on the business in question.

What Are the Differences Between Personal and Business Bank Accounts? 

The important thing to realise is that startups, and even more mature businesses, don’t necessarily need to use business bank accounts. However, you do need to be a registered business in order to use a business bank account.

So, what’s the difference?

• Intention: Personal bank accounts are designed for individual financial management while business accounts are designed for the financial management of businesses.

• Features: The features offered by the types of accounts differ in that the former tends to be more basic, while the latter offers extended features that are specific to business operations, including things like payroll management, ensuring financial transparency, managing cash flow and more.

• Regulatory Compliance: Business bank accounts can help business owners ensure that they’re maintaining regulatory compliance, while personal accounts don’t offer that kind of built-in service.

• Limits: Generally, business bank accounts tend to have higher limits than personal bank accounts, allowing for extended professional activity.

This should give you a good general idea of how business bank accounts differ from personal bank accounts. Essentially, the former offers a plethora of services that can be super helpful for organisations in managing finances and ensuring that everything is above board.

However, if your business is small and these features aren’t a necessity for you, then a personal account may be perfectly adequate.

Of course, for many startups still navigating the early days of their professional journeys, this may very well be the case. They may be small businesses with only a few staff and limited operational capacity.

Indeed, this is often what sets startups apart from other more established businesses, making it perfectly reasonable to question whether or not they need business bank accounts.

The term “startup”, however, can refer to businesses of varying sizes at different stages of development, so it’s not possible to assert that startups either do or don’t need business bank accounts in a general sense.

As always, startups need to be considered on a case-by-case basis.

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Things for Startups to Consider When Opening a Business Bank Account 

Startups differ dramatically in terms of how older they are, their relative success and so much more. Indeed, there really isn’t a set benchmark for when a company is no longer considered a startup.

The point is, calling a company a startup doesn’t necessarily indicate that they’re small, have a limited staff and aren’t very well established.

So, in questioning whether or not startups need business bank accounts, this is another indicator as to why we can’t generalise and make blanket statements across the board.

Instead, it’s essential that you take into account all the relevant individual considerations for each case.

Here are some of the top factors to consider when deciding whether your startup would be best served by a personal or a business bank account.

• Credibility: Having a business bank account can help contribute to your company’s credibility, since it may be argued that having customers make payments into a private account can appear unprofessional. However, this all depends on the startup in question and the relevant industry, as this appearance may be more important in some cases than others. For instance, a startup that produces and sells custom jewellery would probably have different needs to a startup operating in the financial sector.

• Bookkeeping: Business bank accounts often offer bookkeeping services in the form of organising income and expenses. If your startup deals with large and/or frequent transactions, this can be incredibly helpful in terms of saving time and potentially avoiding errors at the end of the trading year. However, for small startups that deal with very basic financials, a bookkeeping service may not be necessary or particularly attractive.

• Loan/Credit Applications: If you want to apply for a business loan or credit, you’ll almost always need to have a business bank account. Personal bank accounts offer account holders private loans for personal reasons, and money obtained from these types of loans obviously can’t be used for business purposes. So, more often than not, if you’re waiting to get a loan to support your startup, you won’t be able to do so without a business bank account.

• Tax Returns: Having your business finances separate from your personal finances can be incredibly helpful when you’re organising your tax returns, and it may even save you money if you’re going to be hiring somebody to do your taxes and accounting for you.

• Software Integration and Synchronisation: If you’re going to use bookkeeping software to help manage your business’s finances, having a business bank account can provide syncing capabilities that aren’t possible with private bank accounts. This can be super helpful for keeping track of finances just generally saving time since you won’t constantly need to make manual changes.

• Transaction Limits: Personal bank accounts impose things like transaction and withdrawal limits on account holders. While business accounts may also have limits, they tend to be a fair bit higher, and they also often offer linked services including invoice production or the services of a financial adviser.

If all these factors are taken into consideration, you should be able to make a sound call as to whether or not your specific startup would benefit from having a business bank account.

Do Startups Really Need Business Bank Accounts?

The simple answer is no, startups don’t necessarily need business bank accounts per se (unless they’re limited companies).

However, depending on the size of the startup, the industry in question, the number of staff, the scale of financial transactions and more, it may very well be beneficial for startups to operate by means of a business bank account rather than a personal bank account.

Business bank accounts can be very helpful in terms of organising finances, ensuring regulatory compliance, providing bookkeeping services, offering business loans and so much more. Thus, if the startup in question is growing and scalability is a consideration, then switching to a business bank account may very well be the way to go.