Hopefully, by the year 2030, there will be over 10 million SMEs in Nigeria alone. Running your own business or being self-employed has never been more popular. However, many of these businesses (especially startups) make life difficult for themselves because they do not have a business bank account. They are not fit for purpose (i.e. they lack the banking sector and services that will save you time and money).
What should Nigerian companies do when faced with this situation? Read on to learn everything you need to know about opening or switching business accounts. Create a business bank account and make your business money work as hard as you do.
Also read: 18 most profitable rental business ideas of 2024
What is a business bank account?
It is a bank account opened in the name of a business, suitable for limited companies, partnerships, freelancers, freelancers and employees. A business account is used only for business transactions and is separate from your personal account. Many bank accounts facilitate deposits and withdrawals, often by debit card.
However, there are other bank accounts that can manage employee payroll, process tax payments and refunds, issue invoices, and help support your financial system. Depending on how your business operates, there is almost always a business bank that meets your specific needs.
Why do I need personal and business bank accounts?
If your business is a limited company with directors and members registered in the Companies and Products Register, you will need a business bank. If you’re self-employed, a freelancer, a gig worker, or even part of a partnership, you don’t need a business bank. But having it can be beneficial for many reasons.
Reasons you need a business bank account:
As an entrepreneur, having a business bank account can add more value to your business than keeping your business money in a safe place. Here are major reasons why every business (even the self-employed, freelancers, and gig workers) should have a business bank.
1. Tell the IRS your business is not a hobby
In order for legal business expenses to be considered a tax deduction, your work must be legal and not a hobby. In order to track your business, the IRS needs to be able to determine whether you are making an effort to make your business profitable.
In determining whether you operate a legitimate business to claim the deduction, the IRS also considers “whether you operate your business as a business and whether you maintain appropriate books and records and are accurate.” Of course, the way to do this is to have a business bank account that will keep all income and expenses of the business separate.
2. Increase your business confidence
Someone once said that a good job is what you see. But in most cases, good marketing is where your customers find you. Corporate banking supports your business name and business name. It adds weight to your work, bills, and purchases. Asking customers to pay into your personal account will make it look like you’re hiding something. Asking them to pay into your business account will increase your legitimacy and strengthen your business.
3. Simplify tax procedures
Having a bank account can help with your tax preparations. It’s easier for all your business income and expenses to flow through your bank account because you or your accountant can link your business bank to your tax preparation software. This way, whether you hire a tax accountant or do it yourself, you’ll save yourself countless hours and headaches trying to figure out your financial information while doing your taxes.
With a business bank, you don’t have to try to figure out which debts are personal and which are for your business. This makes deductions almost happy at tax time.
4. Important for loan applications
If you are looking for a business loan, credit card, loan or other financial instrument for your business, you will have a hard time getting the money you need separately without a single Bank job. Some lenders may not be suitable for business owners who use private bank accounts for business purposes. Others will only place the loan at a reputable commercial bank.
5. Help meet some banking regulations
The additional information you sign when opening your personal bank account almost always includes a prohibition against using the account for business purposes. While most banks ignore low-income work like volunteering or income from part-time jobs like hairdressing or food delivery, they rarely ignore financial transactions like mobile devices, food trucks, or business transactions. In this case, the bank will close your personal bank account and tell you that you need to open a business account.
6. Encourage bookkeeping
Transacting at the bank instantly separates your income and expenses from your personal income and expenses. While this means you’ll have to keep track of two sets of statements – credit cards and bank charges – it will give you an added bonus to your savings every week or month, giving you huge savings when it happens. It help save time and energy.
7. Protect yourself from workload
One advantage of setting up your business as a corporation or limited liability company (LLC) is that if your company cannot pay its debts, creditors cannot legally locate your property unless you commit a crime such as breaking the law. However, if you combine business assets with personal property, such as not maintaining a separate business account, your liability is essentially zero.
This means the judge will hold you personally liable for any business debts incurred. You could lose everything you own based on this information. This isn’t a fun way to open a bank account, but it’s very important to consider.
8. Eases software synchronization
Digital accounting systems for SMBs, such as Quickbooks, can connect spreadsheets, tax records, and other financial records such as invoices and payments to your business bank. The software typically tracks changes in your bank balance and matches it with your sales, purchases, and financial forecasts. Without a bank account, there is no way to sync your accounting software with your bank account; this means you cannot use this form of accounting.
9. Protect your business’s credit score
All Nigerian businesses have a business credit score, which functions the same as your personal credit score (although many business owners don’t know this). The better your business credit score, the better the loans, loans and other financing you can get. By creating a clear wall between your business and your personal finances, a commercial bank helps protect your business credit despite your personal finances and credit score loss.
10. Provides transaction limits to businesses
Most personal bank accounts have restrictions on what the account holder can do, such as limits on the number of withdrawals and credit card purchases per day. Bank accounts generally have more withdrawals and restrictions than private accounts, as well as other business-specific features such as fire-rated electricity generation or financial advisor services.
11. Separate your personal funds easily
It is not necessary to state whether the purchase or proceeds are for business or personal use. It allows you to quickly distinguish between marketing, business and personal needs.
12. Provide greater financial security
Business bank account can help you plan your financial business better and become financially secure. For example, even if you are a trader or freelancer rather than being part of a limited company, you can pay yourself a regular salary through business accounts at the bank and deposit balances to pay business expenses. This arrangement allows you to manage your own budget and meet your business obligations without risking your personal account or paying for important work such as loans or supplies.
How to open a business bank account
Depends on the doctor. You can open a bank account over the phone, online, through an agent, or you must make an appointment at a branch, although there are usually strict eligibility criteria. Banks will often ask for proof of your transfer or employment history, and they will first need to see your annual income or tax return. In all cases you will need to provide proof of identity and provide the business name and Nigerian address of your business.
How to choose the best business bank account provider
Opening a business bank can be difficult and time consuming. The information you need and the application and process you must complete vary from bank to bank. Without professional guidance, SMEs may find themselves searching for a banking system that suits their individual needs. This delay can hurt your revenue and make your business more vulnerable to competition.
Instead, it is better to work with a broker who can compare banking transactions from different service providers. No more cold calls and endless requests for information, just tell us what you need and we’ll do the rest.
