Setting up a business bank account is important for all entrepreneurs when they start their business or when the business is looking to expand. In most cases, entrepreneurs will only start with one business account because the application is usually long and difficult.
However, if you are one of the business owners or entrepreneurs currently using only one business bank account, then this article is a must-read because we will provide some reasons why your business should have multiple business bank accounts, along with how to open one.
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:
- Builds trust and credibility with clients, suppliers and employees.
- Builds company credit history
- Improves cash-flow management
Furthermore, a business bank account will have certain features and services that are specifically tailored to the needs of businesses, such as processing salary payments, merchant services, check issuance, and multiple-user access, for example. These functions are important for businesses to have access to, in order to keep their businesses running smoothly.
✅Tip: Opening a business bank account is a complicated process that could take several weeks to complete for traditional banks. However, some "virtual banks" or "neobanks" are now offering account openings in 3 days or less.
✅Tips: Check out Statrys insider guide for more detailed information on how to choose the right business account
Why should every business have multiple business bank accounts?
There are a plethora of reasons why every company should have more than one business bank account. In this section, we will list some of the most important reasons below:
1. It helps to allocate the account for different purposes
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. 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. 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.
⚠️Important: Keep in mind the associated costs of maintaining multiple business banks 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: this is 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.
- Organizational chart: a chart showing the shareholding and management structure of the company. On one page, this chart must indicate who the directors, the shareholders, and the ultimate beneficial owners of the company are. It must also show the percentage of equity held by the ultimate beneficial owners in the company.
- Proof of address: utility bills or bank statements of the directors, shareholders, and ultimate beneficial owners. The proof of residency must indicate the residence address and usually be dated no more than three months.
- A Certificate of Incumbency: this certificate, also known as the Certificate of Good Standing, is required for offshore companies for which little public information is available. It shall provide information about the management and ownership structure of the company and confirm that it is in good order.
- Business plan: a simplified business plan explains the company's business and gives projections of the company's expenses and revenues for the coming 12 months.
- ID documents: a copy of the ID documents (passport, Hong Kong identity card, or driver's license) of the directors, shareholders, and ultimate beneficial owners.
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.
✅Tips: Here are the 8 best business bank accounts for companies incorporated in Hong Kong to choose from.
Tips on how to manage multiple business bank accounts
Managing multiple business bank accounts effectively requires organization, attention to detail, and clear processes. Here are some tips to help you manage multiple business bank accounts efficiently:
- Establish Account Purpose and Structure: Determine each bank account's function and how it fits into your broader financial management plan. Maintain distinct accounts for various functions like income, spending, taxes, payroll, and specialized projects. To guarantee effective allocation and usage of funds, clearly outline the purpose and criteria for each account.
- Automate Transactions: To simplify cash flow management, set up recurring transfers and payments between your accounts. Recurring activities, such as moving a part of the revenue to a tax account or paying regular bills, can be automated to save administrative labor and the danger of forgetting key events.
- Regular Reconciliation: 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.
- Track and Categorize 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 organization.
- Implement Access Controls: 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.
- Maintain Clear Documentation: Maintain detailed records and documentation for each account. Bank statements, transaction receipts, invoices, and any other pertinent financial records are included. Proper documentation streamlines audits, tax filing, and financial analyses while also ensuring regulatory compliance.
- Regular Reviews and Analysis: Examine the performance and usage of each account on a regular basis. Analyze inflows and withdrawals, evaluate the efficacy of each account's purpose and structure, and make changes as needed. Regular audits assist in optimizing your banking setup and identifying areas for improvement or cost-saving potential.
- Seek Professional Advice: Consult with a financial expert or accountant who can provide advice tailored to your company's needs. They may assist you in developing a customised plan for managing several accounts, ensuring regulatory compliance, and providing insights into streamlining your financial procedures.
By implementing these practices, you can effectively manage multiple business bank accounts, maintain accurate financial records, and make informed decisions based on your business's financial performance.
💡Tips: Some banks also refer to business bank accounts as a "corporate bank account" or a "commercial bank account.".
FAQs
Can you have multiple business accounts?
It is legal to open as many business accounts as you want, as long as it makes sense for your business. Just be sure that your business is fit to manage these accounts and the many security sequences you'll need to keep track of when managing them.
When should I open additional business accounts for my company?
Where is the best place to open a business account in Hong Kong?
