Why Every Business Should Have Multiple Bank Accounts

Did you know that poor cash flow leads to the failure of 82% of businesses?

One common way to improve your business's financial and cash flow management is by opening a separate business account. 

Even though opening a business bank account can be a long and difficult process in some countries, like Hong Kong, don’t let this discourage you. 

This article will explain why businesses should consider having more than one business bank account, how to open them, how to use them effectively, and tips on reducing fees while maintaining several accounts.

A business bank account is a dedicated bank account used for business-related transactions, usually registered under the company's name.

The purpose of a business account is to separate personal and business finances 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.
• Being the foundation for building the company’s business credit history.
• Improving cash-flow management

Additionally, business bank accounts provide specialized features and services designed to meet the unique needs of businesses. These offerings, such as higher transaction limits, processing salary payments, merchant services, and multiple-user access, may not be available with personal accounts.

Some banks also refer to business bank accounts as "corporate bank accounts" or "commercial 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:

Multiple bank accounts are commonly used to separate various financial activities, such as accepting payments, managing expenses, and holding savings. This separation enables business owners to track each activity more quickly and effectively than using a single account for all transactions.

With multiple accounts, businesses can simplify and reduce errors in bookkeeping, which brings several benefits, including better accounting, better identification of deductible expenses and calculation of income for tax purposes, clearer insights into cash flow, budget adherence, and cost-saving opportunities. 

Additionally, well-organized records facilitate accurate financial statements, crucial for securing loans and attracting investors.

By having separate business bank accounts for different purposes, such as revenue, operating expenses, taxes, or specific projects, businesses have instant visibility into their financial activities. As a result, businesses can allocate funds precisely where they're needed most to ensure optimal resource utilization. Additionally, businesses can benefit from the unique offerings of each account.

For example, if you want to set aside funds for different purposes, opening separate accounts can help prevent the accidental use of funds you intend to save. Moreover, you can select high-yield savings accounts that align with your savings goals, whether for long-term or short-term objectives. 

Similarly, businesses can transfer surplus profits they don’t intend to use in the near future to accounts with the highest interest rates to maximize returns.

This is an important point to consider: if you're conducting unusually large transactions, transactions in unfamiliar locations, or if there are suspicions of fraud, compliance issues, or disputes, your bank might freeze or block your account as a precautionary measure. While you might attempt to resolve this by contacting your bank, whether your account gets unblocked or unfrozen depends on the bank, and it's challenging to predict how long the process will take.

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.

In 2023, the financial sector experienced the highest number of data breaches.

By spreading your company's money across multiple business bank accounts rather than concentrating them in a single account, you can protect yourself against the risk of breach, fraud, or bank failure. 

In essence, distributing finances across various business bank accounts increases the number of insured assets. 

For example, the Hong Kong Deposit Protection Board announced that deposits held with banks in Hong Kong that are members of the scheme will receive compensation up to a limit of HKD 500,000 if the bank fails. This means the insurance coverage applies to each individual bank. Therefore, the more banks you use, the more your funds will be insured against bank failures or fraud.

This reason is only relevant if your business deals with multiple currencies.

If you have only a single-currency account and receive foreign currencies by converting them to your domestic currency, you may incur losses due to unfavorable exchange rates since you can't control when conversions occur. 

To address this issue, consider opening multiple business accounts for different currencies or, even better, getting a multi-currency account. 

Multi-currency accounts allow you to hold various currencies and choose when to convert them, taking advantage of favorable exchange rates. Additionally, many of these accounts come with foreign exchange (FX) services. 

Another benefit is the potential for lower fees when sending or receiving different currencies directly, as you can transfer in the foreign currency without the need for conversion.

You can open a second account through a process similar to the first one, involving key steps such as examining eligibility, preparing the necessary documents, and undergoing the bank's verification process. However, it is important to note that requirements may vary depending on the bank, country, and individual circumstances.

For example, these are the most common documents that many banks in most countries may ask for:

• ID documents: to identify the directors, shareholders, and ultimate beneficial owners of the company.
• Proof of address: Documents indicating the residence address which can be dated back to no more than three months.
• Organizational chart: This chart shows the shareholding and management structure of the company.
• Business plan: to explain the company's business and give projections of the company's expenses and revenues for the next 12 months.

If you are in Hong Kong, you will need these additional documents 

• 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.
• A Certificate of Incumbency: to provide information about the management and ownership structure of the company and confirm that it is in good order.

Typically, required documents must be certified true copies, which can be done by a lawyer, a public notary, a certified public accountant, ora company secretary.

In order to manage multiple business accounts effectively, there are some recommendations that you must follow to prevent them from spiraling out of control. Here are our recommendations to keep your multiple business bank accounts in check:

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

Having a clear purpose for each account ensures active usage, preventing accounts from becoming dormant and potentially incurring inactivity fees.

One challenge of having multiple accounts is maintaining a minimum balance for each account to avoid maintenance fees. 

Consider opting for banks with lower minimum balance requirements and fees from the outset, whether they are smaller banks offering accounts designed for small businesses or alternative options to traditional banks like local credit unions, online banks, neobanks, fintech companies, or other types of financial institutions. These alternatives often provide business checking accounts with fewer fees and usually without minimum balance requirements. 

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.

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.

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.

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.

Getting and managing multiple accounts might result in more fees for each. Here are some ways to cut those costs.

Bank fees, especially transaction and conversion fees, can quickly add up. Some fee specifics may not be presented upfront, so it's crucial to take the time to review the entire fee disclosure document carefully.

This can help you make informed decisions and take proactive steps to reduce expenses. 

For example, you can ensure you maintain the required balance or manage your transaction volume to avoid penalties, switch to accounts with fewer fees, or consolidate accounts to cut costs if needed.

It's recommended that you request a thorough breakdown of fees from your bank. In many countries, banks are required to disclose their fees to consumers. For example, in the US, banks must provide certain disclosures regarding their service fees, and banking laws prohibit banks from advertising an account as "free" if it charges regular maintenance or activity fees. 
Similarly, the Code of Banking Practice in Hong Kong states that institutions should provide customers with details of fees and charges.

Traditional bank alternatives like online banks, virtual banks, or neobanks often offer lower fees than traditional banks. These alternatives are typically predominantly online, allowing them to offer lower rates due to reduced overhead costs from maintaining fewer physical locations or branches. The features and fee structure are often tailored with small and online businesses in mind.

Additionally, opening an account with them is often quick and can be done online, which saves time and money.

Many banks already offer conditions to waive monthly service fees if you maintain a minimum balance or conduct a certain number of transactions within a specific period.

Moreover, it's always worth contacting your bank or financial institution directly to explore the possibility of fee waivers. Banks might waive overdraft fees for long-standing customers or non-sufficient funds (NSF) fees for first-time occurrences.