Whether you’re just starting a business or are expanding, a business account is an essential asset that could produce a significant impact – it keeps your personal and business finances and assets separate, helps with bookkeeping, offers tax advantages, and more.
Additionally, while one business account is a reliable start, the gains from having multiple accounts are far more substantial.
This article will discuss why business owners should own multiple accounts, how to open a business account, and tips on managing them.
We also understand that opening business accounts can be complex, especially in some places like Hong Kong, so we have provided a quick guide through the process.
What is a Business Account?
A business account or business bank account, often called a "corporate bank account" or a "commercial bank account," is an account designated exclusively for business purposes, often registered under the company's name.
It is used solely for conducting business-related transactions to prevent conflicts of interest, such as personal purchases with business funds, legal liability, financial audits, business credits, and even tax deductions.
Why Your Business Needs Multiple Accounts
There are many reasons why entrepreneurs and businesses should have more than one business account. In this section, we'll outline some of the most important ones that you must know about.
1. It Ensures Cashflow and Smooth Operation
This is arguably the most important reason for having multiple business accounts. By safeguarding your cash flow, you will be able to continue your business operation in cases of unforeseen circ*mstances.
Consider this scenario:
An account becomes compromised, or a business transaction in an unfamiliar location triggers your bank to freeze your account.At this stage, you might be trying to unfreeze your bank account by contacting your bank to figure out the issue and submitting evidence. However, unfreezing an account is at the bank's discretion and is not always guaranteed, and the time it takes to unfreeze an account is uncertain at best.
If all your funds are tied up in that single account, you could face a cash flow issue or operational issues while waiting for the bank's decision.
By diversifying your funds across several accounts, you ensure that should one account face issues, you can access funds from the others.
2. Better Financial Management
Having good financial management is crucial for businesses for several reasons. Dedicated accounts for specific purposes, such as revenue, expenses, taxes, and individual projects, which help improve decision-making, risk management, sustainability, and growth.
Consider these scenarios.
3. Tax-Time Relief
When all your funds pass through a single account, tax season becomes a painful and time-consuming ordeal. You may have to review months of transactions to identify deductible expenses and calculate your income, as well as its sources.
In contrast, when you separate your finances into different accounts, tracking income and expenses becomes much more simplified.
Additionally, you can maintain a separate account to set aside funds for your tax obligations. This can be helpful if your taxes involve various income sources, deductions, and different tax obligations (e.g., income tax, sales tax, payroll tax).
4. Risk Mitigation from Bank Failure
While banks and financial institutions are generally safe and come with deposit insurance, they are not completely immune to risks such as fraud or bankruptcy.
Moreover, deposit insurance has limitations on the amount it can cover, and it may not reimburse you for the entirety of your losses.
For instance, the Hong Kong Deposit Protection Board provides compensation for deposits in the event of a bank failure, but it's capped at HKD 500,000. Additionally, specific financial products may not be covered.
Hence, distributing your funds across multiple accounts can be a strategic move to minimise risks and maximise the safety net.
Tip for Managing Multiple Business Accounts
Here's some advice to manage multiple accounts, keep them organised, and get the most out of them.
Find Out and Keep Track of Each Account’s Expenses
Before adding more accounts, examine the expenses, such as account fees, monthly fees, and minimum balance requirements. Verify that these costs won't hurt your profits.
Then, maintain good bookkeeping practices to track these expenses. This helps you determine if the accounts are more beneficial than costly at the end of the day.
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Keep Tabs on Your Accounts Activities
Regularly review your bank statements to identify any anomalies, errors, or potential fraudulent activity.
Staying on top of your documentation lets you see how your accounts are used and ensure they represent your company's financial status precisely.
Give Each Account a Distinct Role
Always clarify the primary purpose or function of the new account when signing up for it.
Consider the key tasks you want each account to handle, such as collecting income, managing expenses, handling tax obligations, and overseeing salary disbursem*nts.
By defining these tasks, you can allocate funds and resources more accurately.
Organise Your Financial Activities
Accounting software or automation tools that automatically categorise transactions can save valuable time.
This categorisation also offers useful insights for budgeting and financial planning.
Monitor Account Access
Establish clear access and approval procedures, especially if multiple team members oversee the accounts.
In addition, define clear responsibilities for optimal security and to avoid unauthorised activities.
It’s also recommended to review and modify the access periodically.
How to Open a Second Business Account
In essence, opening another business account follows a similar process to your initial one.
Begin with thorough research to pinpoint the business account that aligns best with your objectives, understand the eligibility criteria, and then gather the required documents.
For example, if you want to open a business account with banks in Hong Kong, you will need these documents.
The required documents need to be certified true copies, which can be done by professionals like lawyers, notaries, CPAs, or a company secretary.
Each bank and financial institution has its unique submission process and document requirements, so it's advisable to consult official sources for clarity.
Opening a Virtual Business Account
Opening business bank accounts with traditional banks can be challenging.
For businesses registered in Hong Kong, Singapore, and the BVI, consider Statrys. Statrys is not a bank but a payment service provider offering a multi-currency virtual business account, with the following benefits
Statrys is a licensed Money Service Operator (No. 19-02-02726) in Hong Kong, operates under regulations, which is a trusted bank registered with the Hong Kong Deposit Protection Board.
FAQs
Not sure which to choose? Explore a comprehensive overview of our insider guide to picking a business account and find a full list of the top business accounts in Hong Kong.
