Setting up a business bank account is an important step when starting a business or when the business is looking to expand. However, opening a business bank account is usually a long and difficult process, especially in Hong Kong.
If you are an entrepreneur or a business owner using only one business account for your business because of the reason we stated earlier, then this article will provide some reasons as to why your business should have multiple business bank accounts.
What is a Business Bank Account?
A business bank account is a dedicated bank account for businesses. The account is usually registered under the company's name, and It is primarily used to handle business-related transactions. Another purpose is to separate personal and business transactions to avoid conflicts of interest and tax complications.
Other benefits of a business bank account include:
- Building trust and credibility with clients, suppliers and employees.
- Building the company's credit history
- Improving cash-flow management
Furthermore, business bank accounts will have certain features and services that are specifically tailored to the needs of businesses, such as processing salary payments, merchant services, check issuance, multiple-user access, etc. These functions are important for businesses to have access to, in order to keep their businesses running smoothly.
💡Tip: Some banks also refer to business bank accounts as a "corporate bank account" or a "commercial bank account."
💡Tip: If you need to open a business account quickly, you should consider alternative options to traditional banks, such as virtual banks or neobanks which are now offering account openings in 3 days or less.
Why should every business have multiple business bank accounts?
There are many reasons why a company should have more than one business bank account. In this section, we will share some of those reasons with you:
1. Because it helps with funds allocation.
By having separate business bank accounts for different purposes, such as revenue, expenses, taxes, or specific projects, you create a clear segregation of funds. If one account is blocked or inaccessible, it does not impact the funds in other accounts designated for different purposes. This separation facilitates better financial management, reporting, and tracking of specific business activities.
2. Because it allows you to continue operations without interruption.
This is an important point to consider, if one of your business bank accounts gets blocked or frozen due to issues such as suspected fraud, compliance concerns, or disputes, having another active account allows you to continue essential business operations without disruption. You can still receive payments from clients, make payments to suppliers, pay your employees and manage your cash flow through the alternate account.
This account can serve as a backup in case of unforeseen circumstances and ensures that you have readily accessible funds to address critical business needs during challenging times.
3. Because it protects your assets against fraud or bank failures.
By spreading your company's money across multiple business bank accounts, you can protect yourself against the risk of fraud or bank failures. For example, the Hong Kong deposit protection board announced that deposits held with banks in Hong Kong which are members of the Scheme will receive compensation up to a limit of HK$500,000 if the bank fails. There are some types of financial products not protected by the DPS, so it is important to do some reason to see who is eligible.
Essentially, by splitting your money into multiple accounts, you will diversify the risks and increase the number of insured assets. Keep in mind the associated costs of maintaining multiple business bank accounts, such as account fees or minimum balance requirements. Be sure to check how much they are before committing to multiple business accounts.
How to open multiple business bank accounts
While there may be similarities in the process of opening the first business bank account, it is important to note that each bank will have its own requirements on what documents they need and how to submit the required documents. In this section, we will list the most common documents that many Hong Kong banks may ask you for:
- Board of Directors resolution: to authorize the creation of the corporate bank account and delegate power to one person to manage the application with the bank.
- Establishment documents: to prove that your company was duly incorporated and validly registered in hong kong. Business registration documents vary depending on where your company is incorporated.
- Organisational chart: to show the shareholding and management structure of the company.
- Proof of address: it must indicate the residence address and be dated back to no more than three months.
- A Certificate of Incumbency: to provide information about the management and ownership structure of the company and confirm that it is in good order.
- Business plan: to explain the company's business and gives projections of the company's expenses and revenues for the next 12 months.
- ID documents: to identify the directors, shareholders, and ultimate beneficial owners of the company.
Typically, required documents must be certified true copies which can be done by a lawyer, a public notary, a certified public accountant, or a company secretary. Lastly, opening requirements for each bank will vary by bank, country and individual circumstances. We recommend reviewing these factors carefully before submitting an application.
💡Tip: Here are the 8 best business bank accounts for companies incorporated in Hong Kong to choose from.
How to manage multiple business bank accounts
In order to manage multiple business accounts effectively, there are some recommendations that you must follow to prevent it from spiralling out of control. Here are our recommendations to keep your multiple business bank accounts in check:
1. Set up each account's purpose
You must first decide the purpose of each business bank account. For example, you should decide beforehand what you want to use each account for what purpose or function. Some examples of the account's purpose or functions are:
- For receiving income
- For spending
- For paying taxes
- For managing payroll
2. Be on top of the documentation
Being on top of the documentation such as bank statements, transaction receipts, invoices, and any other pertinent financial records is essential if you want to manage multiple business bank accounts. By checking the documentation regularly, you can examine the usage of each of your accounts to determine if the account is right for your business or not.
3. Check your accounts
To guarantee accurate financial records, reconcile your accounts on a regular basis. Check your bank statements against your accounting records for any anomalies, errors, or fraudulent activity. Reconciliation helps to maintain the integrity of your financial data and ensures that your accounts appropriately reflect the financial status of your company.
4. Categorise your transactions
Create a system for tracking and categorizing transactions by account. Assign transactions to specified accounts and expense categories using accounting software or tools. This approach ensures accurate reporting, streamlines tax preparation, and provides insights into the financial success of your organisation.
5. Keep track of who has access
Establish suitable access restrictions and permission processes if you have many team members managing your accounts. Allow access only to those who need it, and clearly outline their roles and responsibilities. To maintain security and prevent unwanted transactions, check and adjust access privileges on a regular basis.
By following these recommendations, you should be able to effectively manage multiple business bank accounts and maintain accurate financial records for your business.
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