Would a business account be of more benefit?

[goodgodfather]

Morning all.

I’m currently working remotely/ online as a freelancer. I do also have a few businesses as well as an online business which are slow and have not yet taken off.

None of my businesses are registered yet and all currently trade under one/ similar names. I’d like to find out if it would be better to open a business account now (just for the online/ freelancing work to start off with) and establish my businesses with that account or to stick to my day-to-day savings account?

I plan on opening up the Gold Business account with FNB. It’s basically the same as the First Business Account but includes E-Bucks for a small monthly account fee.

Would this be a better move to do now (to receive payments for freelancing work) as well as have the account ready for when my businesses and online business take off?

Lastly, would I have a bit more relief with tax after transacting with a business account for my businesses, after some time (and ofcourse registering my businesses) or am I better off sticking to my day-to-day savings account.

TIA, apologies for the long post. I’m still learning and building up my financial literacy.

 

[lovewithoutforgiveness]

@goodgodfather I am not sure about the business account. But you should not use a savings account for transacting. Unless things have changed recently, saving accounts have higher transactional fees. Use a current account for day to day.

 

[peter_g]

@goodgodfather Why are you using a savings account to transact now? That will destroy any interest you're earning on it.

Just get an easy account with FNB. It's incredibly cheap and simple cheque account and you can earn eBucks from it.

Business accounts only really make sense if you have multiple users who need access to the same account or it's not in the name of a legal person.

 

[durkon]

@goodgodfather Starting a business account is a great idea because as your freelance career progresses, big agencies will require your registration certificate and tax clearance (after you see an accountant in the future) to onboard you.

The business account will allow you to pay yourself a salary, and you can start thinking in terms of personal growth and business growth.

You will also incur less from accountants who would need to separate personal and business transactions.

You'll also be able to receive USD and currencies from certain international clients who pay that way - by adding a dollar account linked to your business account.

 

[rebekahbell]

@goodgodfather the major benefit is easier accounting records. I actually don't know of any regulations that make it required but when tax season comes you'll be grateful.

Any time i will have frequent transactions I use a dedicated account otherwise just good recording keeping will suffice I have 100% used a dedicated savings account or otherwise

 

[gbear70]

@goodgodfather FNB has a zero business account which might be more suited for you.

 

[onetoughpawn]

@goodgodfather First off - it is ALWAYS good practice to separate business and personal transactions. Whatever you make in your 'business' (formal registered or not) you can have more than one account.

If you want to open a BUSINESS account, the bank will require you to have a registered business BUT you can open a 'sole proprietor' account - which you can use for all business income and expenses for ease of record keeping.

Your personal transactions should be paid from personal funds - in other words your businesses should pay you a salary/remuneration.

A formal registered business (Pty)Ltd is a separate legal entity - so there are some benefits and draw backs depending on the income...

Depending on how complicated your income structures are you may want to get some advice from an accountant, but as a general rule of thumb, keep it simple for as long as possible - in other words - OPEN A SEPARATE ACCOUNT, but only register a formal business after you've tested the concepts and principles of your business and it is working and growing.

PS: a sole proprietor income is still counted as your personal income, so you will pay tax on the combined income of all of your business income, for this reason it MAY MAKE sense to register a business...

long answer... ;-) but there is more to it than that

 

[plainjane3]

@onetoughpawn Do Not, never open a sole proprietorship account. For tax purposes this is almost always a bad idea.

Always register a business, Pty ltd, it costs a relatively small amount to open. And initially has a few requirements, like tax declarations based on profit.

Now that you are considering a business,

1: You can get Zero month fee accounts, for a small business with relatively few outlays a month aka 1 or 2 expenses / providers this is generally seen as a benefit. You pay from r transactions and you will need to decide if it is worth the transactions or not.

2: Pay yourself as if you are a sub-contractor, yes you will need to declare that as your personal income.... But there is a benefit to the whole Pty ltd that you need to understand.

3: Understand businesses pay tax based on profit.
Profit is the money you make after expenses. A growing business will probably make nothing in profit for the first few years. t is almost always beneficial for the business to pay for liabilities, instead of you paying it out of your pocket.

Make sure you pay for things the business needs...
Supplying a sub-contractor with a means to communicate with clients.
Paying for internet availability.
Transport.

If it is a legitimate business need it is generally worth while to put reasonable expenses into the business accounts.

If you are lucky to have the money Lend the business money, in order for it to get the necessities it needs.

4: Sub-division, I have found even though it is more admin, it is almost always favourable to subdivide liability classes if the liability holds value into seperate businesses, this means if something happens on one business it won't affect the other businesses, eg if one business has an accident it's not going to kill all your typical use assets and allows you to move forward.
Eg vehicle, where a business you own rents the vehicle to another business you own.
If you do this you have firewalled the vehicle from other business activities...

Lastly do your taxes, watch rich dad poor dad, the rules may be different based in Africa and different tax laws and opportunities with loans ect, but the basic principles are the same.

Also know it costs +-R200 a year to keep your business registered with cipc, if someone asked me if it is worth it to write off R1k a year in order to protect yourself better and simplify your life the answer on my side would almost always be yes it is.

 

[christisyourlife]

@plainjane3 Hello! You have made the mistake of writing "ect" instead of "etc."

"Ect" is a common misspelling of "etc," an abbreviated form of the Latin phrase "et cetera." Other abbreviated forms are etc., &c., &c, and et cet. The Latin translates as "et" to "and" + "cetera" to "the rest;" a literal translation to "and the rest" is the easiest way to remember how to use the phrase.

Check out the wikipedia entry if you want to learn more.

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[onetoughpawn]

@plainjane3 The only reason I say start as a sole proprietor is for those who are just starting out and the business is not established yet. The reason for this is that if the business doesn't work out, you incur costs to de-register that formal business, while with a sole proprietor business, you can just close accounts and move on with your next business idea.

 

[goodgodfather]

Thank you all for your thorough advice & input on personal experience.

I did forget to mention that I have previously had a personal Gold Cheque account with FNB & didn’t have any issues at the time.

Going to use the advice provided above & do some research as well as sit down & discuss the above & other questions I have with bankers from a few different banks.