As the owner of a business, you should know all the benefits of having a business bank account. Most people just starting off with a business might prefer to use their personal accounts for their business finances. This takes away the hassle of using multiple accounts at the same time.
That being said, mixing your personal and business finances might not always be a good idea. Read on to find out some business bank account benefits, and how not opening one can affect your personal finances.
Note: If you want to open the best business bank account on the market for professionals, try Bonsai Cash. It's easy to set up and great way to save, spend, and manage your business funds. Sign up today to get started.
Business bank accounts are the types of accounts used by sole traders and commercial traders in order to keep track of their business transactions. They are very helpful in keeping personal and business transactions separate.
A business bank account is used for accepting payments from customers, but also for paying vendors and potential employees. It separates your business debt from your own, which can offer you personal liability in the long run.
Depending on the kind of business that you are running, you may or may not be legally required to open a business bank account. For instance, if you have a sole proprietorship with no DBA, then you are not legally bound to open a business bank account. You can just use a personal account that is in your name.
However, if you are a sole proprietor with a DBA, an LLC owner, or the owner of a corporation, it is required by the law to have a separate business bank account. You cannot use a personal bank account in these circumstances.
Read more about the best bank accounts to open for business.
A dedicated account for your business is important as it can bring the following advantages:
Perhaps one of the most important reasons for getting business accounts is that you need them in order to form a partnership or a corporation.
When you have a sole proprietorship without a DBA, with only your name on it, your personal funds and business finances are pretty much placed together.
Things change when the name of the company is different from yours.
When you are a partner or the owner of a corporation, it will not only be your name there. The names of your partners will be involved as well, which means you cannot use your personal account for your business finances. The business structure requires you to get an actual business account. A business bank account solves the problem for having separate records for your legal entity.
When you are the owner of a sole proprietorship and are using your personal bank account, there is a high chance that you will get mixed up in your expenses.
For instance, when you are making your calculations for your tax return, it might be difficult to know whether that meal you paid for was a business meal or a personal one. As a result, you may not know if it's deductible or not.
On the other hand, if you keep your business expenses in a dedicated business bank account, it is much easier to keep track of receipts for taxes and everything else.
If you make all of your business payments through a personal bank account, the most you will likely get is a personal loan. If you want to get a business loan, then you'll need a business checking account open.
By opening a business bank account, you will also improve your business banking relationship with the financial institution. This will make it much more likely for you to get your hands on a credit line. Business bank account records allow you to show self-employed proof of income so you can get more credit because creditors will trust you more.
Let's say that you are a business owner, and you get audited by the IRS for certain deductions that you tried to claim. If you have a business bank account, then you can prove to the IRS that you are a legit business and that you do not consider it a hobby.
If you need to write a check in order to pay for business expenses, then a business account might make you appear more professional. If they see that the money comes from your personal finances, the people you are collaborating with might not take you seriously.
A business bank account makes you seem like someone who is actually serious about what they are doing. It expresses that you are in it for the long term and that it is not just a hobby you are planning to take on now and again.
As the owner of a business, the chances are high that you will be using your checking account for a number of personal and business expenses. The problem is that if you use a business account or one that mixes your business banking, the chances for identity theft and fraudulent activity are much higher.
However, the risk is lower if you use business bank accounts, as your personal information won't be connected. A separate business bank account will only contain the information of your business, which means that your name and your personal funds are protected.
Things are even safer if you get an EIN (Employer Identification Number) from the IRSfeorm . This way, you won't have to put your social security number down anymore; you'll just need your EIN. As a result, any potential thief will not have access to your personal bank accounts.
The problem with personal bank accounts is that you can't accept credit card payments - but you can if you are using business accounts. We've reached a point in our economy when everyone pays for personal and business expenses using credit cards - so, you need to make sure that your own business can accept credit cards as well.
If the law does not require you to get a business bank account, you might feel tempted to just keep your business banking in your personal accounts. However, there are certain disadvantages to this, as follows:
If you are looking to get a small business loan, you won't be able to do so unless you get a business bank account. As the owner of a personal account, all you will be able to get is a personal loan.
As small a matter as it may seem, a business checking account can help you expand your business by giving you access to a small business loan. Throw in a savings account as well, and you will certainly seem reliable enough to the financial institutions.
Using the same bank account for both personal and business purposes might overcomplicate keeping your business records. This happens especially if you also use your credit card a lot for personal purposes.
Imagine you have to file taxes at the end of the year, and you have to separate your personal transactions from your business ones. It would be like looking for a needle in a haystack. A separate checking account for your business will make it much easier for you to keep things in order.
As your bank accounts will get more activity, this will increase the chances of fraud. This can be unintentional, or it can occur as a result of someone hacking the designated account for your business.
That being said, if you get actual designated business bank accounts, potential scammers will have to go through a whole number of layers and complications in order to get to your personal information. By the time this happens, you would have already solved your security problem.
Once you've determined what business bank account you wish to open, you need to gather the information for the account. Here is what you need to bring to the bank:
As long as you are thorough with your documentation and you offer them all the information that they need, the process itself should be smooth.
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With our "envelopes" feature you can create separate savings accounts for retirement, taxes, or even vacations. You would also get access to a virtual or physical debit card you can use to purchase stuff for your business and organize your expenses for when tax season rolls around.
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Opening a business bank account might come with a couple of questions. Here are some common questions, along with their answers.
The point of getting a separate business bank account is that it helps you differentiate your personal expenses from your business expenses. A business bank account will help you keep track of your business transactions, without getting all lost in your personal ones.
Many people say it's worth it to get a business account, as it makes their finances easier and adds credibility to the business. While you may have to pay a few maintenance fees, depending on the account that you are getting, it will also make your job much easier.
While savings accounts are not mandatory by the law, they are still highly recommended. The savings allow you to protect your assets, but it will also give you some funds to grab onto in case of an emergency.
The necessity will also depend on the bank that you are working with. For instance, while some banks allow you to open a business checking account without a savings account, others make the latter a requirement. You might want to discuss these matters with your bank first.
If you use the business bank account solely for business purposes, then you might not be held liable for business debt. However, if you use the account for personal purposes as well, then there is a chance you might be held liable.
Business bank accounts might not seem like much of a great deal at first, but in the long run, a dedicated business account can help you expand.
It protects your personal assets, strengthens your business credibility, and makes it easier for you to keep financial records. You just need to find the right business account for you.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?