The financial services sector has an enormous effect on the economy, people, and businesses. In 2017, the financial services sector accounted for 6.5% of the total economic output in the UK. The sector added ¬£119 billion to the economy and offered 1.1 million employment opportunities.
In the 2016/2017 financial year, the financial services sector remitted ¬£27.3 billion in taxes. In addition to these benefits for the economy, the financial services industry has huge benefits for businesses. Notably, banks are prominent for helping both big and small businesses to thrive and guarantee their success and survival in the long-term.
Through commercial banking, banks have an array of products and services for enterprises ranging from lending money to foreign exchange, basic accounts, investment banking, and payment and transaction payment. Business bank accounts help businesses manage their finances and cater for expenses.
Benefits of Business Accounts
A business bank account is a good idea for any business regardless of size, type, or area of operation. Whether you have a home-based, online, or brick and mortar business in whichever sector, a business account can offer numerous benefits. Here are some of them.
1. Finances management
The primary purpose of a business account is to handle business transactions and related expenses. It helps you manage your business finances and allocate money for different ventures.
With a business account, you can quickly and conveniently cater for expenses such as bills and employee salaries. For instance, if you want to pay a bill, you just write a check, and the amount is debited in your account. Such convenience is incomparable to reimbursing employees for spending on your business expenses.
2. Establishing a business banking relationship
A business account can help you develop a good relationship with your bank to drive business growth. A business banking relationship may assist you to obtain financing with better terms to expand your business. You may want a loan to purchase equipment, increase inventory, or buy assets. A good business relationship with your bank makes it easier to obtain other commercial banking products like business credit cards and overdrafts.
3. Financial identification
A business account offers your company financial identification and representation. Your business is acknowledged as an entity with a financial base. A business account is among the most obvious proof of your business's existence. Also, it adds legitimacy to your business. Suppliers would love to deal with a company with a bank account as it shows stability and good faith. Customers too, especially those who buy online, will trust your business more if it has a bank account.
4. Maintaining professionalism
When you are in business ‚Äìstartup or an established firm- image is everything. When you write a check or use other payment methods and your name appears, it doesn't help your image. Instead, it conveys a message that your business is a few weeks old.
Having a business account gives your firm a professional appearance and image. When you write a check to your suppliers, they see it's coming from a business. The same applies to your customers; they make payments to your business account, not your personal account, which improves the image of your business. Some customers are reluctant to make payments through a personal account, and hence, a business one becomes handy.
5. Separating personal and business finances
Many people make the mistake of marrying their personal finances and business finances. They assume that by keeping separate records, they can determine the monies for business and those for personal use. However, in most cases, it does not work, and they end up using business funds for personal expenses, which can be a big blow for any business.
It is best practice to keep personal finances and business finances physically separate in different bank accounts. A business account provides the ability to separate your personal finances from the business ones. Some business owners make a step further to use different banks for business and personal banking to ascertain separation.
6. Organise financial records
Imagine if you mix personal with business finances and it's time to file income tax. How do you determine the monies that are personal and those that belong to your business? It will be a mess that no accountant wants to handle.
However, when you have a business account, you have a clean and accurate record to offer your accountant when income tax time comes. You have a leg up when dealing with HMRC.
Additionally, a business account helps you to determine trends in business ‚Äìpeak and off-peak seasons- and monitor business profitability. For example, by examining your business account for the past month, you can determine the profitability of your business. If your business earned ¬£7,000 and spent ¬£2,000 on expenses, your net profit is ¬£7,000 - ¬£2,000 = ¬£5,000.
7. Legal reasons
A business bank account guards you against legal issues in the event of problems. When a problem arises in your business, your business account will be examined by relevant authorities.
If you merge your personal and business account, in the event of an issue, your personal finances are affected. A business account protects your personal funds in conflicting situations.
Many businesses have an expense reimbursement strategy to cater for employee expenses. The approach allows businesses to pay back employees for personal money spent on business-related expenses.
Expense reimbursement occurs when employees incur expenses on behalf of the company. There are three types of employee expense reimbursements, namely:
- Travel and mileage reimbursement: travel reimbursements include expenses like air ticket, meals, accommodation, and cabs that employees incur during business travels. Employees can claim mileage reimbursements if they use their personal vehicles to get to a corporate meeting or event.
- Business expense reimbursement: when employees pay for office supplies or training programs, they are eligible for a refund.
- Healthcare reimbursement: many employers offer employee health benefits whereby an employee is reimbursed for monies spent on treatment and health premiums.
Downsides of Expense Reimbursement Strategy
Finance teams spend loads of time to verify data, process claims, approve them, and reimburse employees. This time can be spent on other profitable and productive tasks.
Firms incur additional labor costs hiring finance professionals to handle the reimbursement process.
¬∑ Draining on employees
Most employees dislike the process of filing for reimbursement, especially when they just returned from a business trip. The process of getting a reimbursement is at times lengthy. At times, receipts are lost, and it is tedious and time-consuming to replace them.
¬∑ Cash flow issues
When employees pay for expenses on behalf of employers, they increase the probability of experiencing cash flow issues. A research conducted by Conferma titled America's Invisible Bank: The Real Cost to Employees revealed that employees incur approximately ¬£1.43 billion monthly in reimbursable expenses.
38% of respondents claimed to use personal monies to pay for organizational expenses with the average expense being ¬£99.24. This puts a strain on employees, and they lack money for personal expenses. Many employees feel like they act as a bank to their employers.
¬∑ Reimbursement delays
Most reporting and reimbursement processes are flawed, and delays are common. Reimbursement delays result in employee dissatisfaction, frustration, and low retention rates. Delays emanate from approval delays and lost receipts. A typical reimbursement takes five weeks, which can have a toll on an employee's finances, including issues paying their bills.
There's a Better Way
Forget the current flawed expenses reimbursement; there's a better way for businesses to cater for employee expenses. A business account lets you provide for business expenses ‚Äìincluding employee expenses- quickly and conveniently without having to waste resources on reconciliation.
A bank can offer a corporate credit card or prepaid debit card that meets employees' expenses beforehand. For example, rather than using personal monies during a business trip, an employee can charge all costs to a company credit card except incidentals and tips. This is an appropriate approach to expense reimbursement because the credit card bill documents the type of expense incurred without having to preserve receipts and fill out reports.
Alternatively, a business can pay for employee business-related expenses with per diem. Since a business account comes with a check, a business owner can write a check for the per diem, pre-determined allowance for business-related expenses paid per day. The employee does not have to spend their money. They can use the per diem instead.
Nonetheless, whether your business uses a corporate credit card, cash, or per diem, you have to develop an expense reimbursement policy that stipulates what is catered for and what is not.
For example, if an employee takes his pet to a business trip and charges the hotel pet fee to the company credit card, will that be considered as a misuse of business funds? The expense reimbursement policy should address such a concern, and precisely determine what expenses are reimbursed and which ones are not.
Handling the financials of your business effectively is crucial to establishing a successful enterprise.
This is because accounting is the cement that holds the other departments together. A business bank account can help you manage finances appropriately as well as gain other benefits. It is a better option for paying for expenses as opposed to employees paying for company expenses then being reimbursed.
The process of expense reimbursement is time-consuming, tedious, and delays in reimbursement have negative effects on employees, including dissatisfaction and high turnover rates. Contact Forma for all your accounting needs so that you can concentrate on more profitable tasks.
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