Are you starting a business with a partner? While most entrepreneurs starting a business know that they should open a business checking account, they may automatically assume that the account will be a joint account with their partner. However, you have a choice when creating your business bank account. Your options include joint or linked accounts. Here's what you need to know about both.
Pros and Cons of a Joint Business Account
Certainly, the biggest advantage of sharing a joint account with your business partner is that it makes partnership finances easier. The business has one account, which means it's easy to look at it and assess your cash flow and what income or expenses have cleared. It also adds transparency to the partnership because all partners have equal access to the accounts and will share responsibility for decisions.
In order to share the rights and responsibilities of a joint account, both partners need to agree on the rules and abide by them. With unfettered access, any one person can make spending decisions — from paying for a client lunch to buying a company vehicle — at any time and without consultation. Trust is vital. Some partnerships mitigate this danger with things like dual signatures on checks or approval thresholds.
Pros and Cons of a Linked Business Account
Linked business accounts are those which are owned and operated by each separate partner but are connected for some transactions. Linked accounts provide control over your own account because the other partner cannot spend your money or clean out the account. This is a good solution for partners who may not know and intimately trust one another yet, and they don't have to be a permanent solution.
Generally, the price you pay for this extra control is that it makes the company's finances harder to manage. Rather than have one account to consider, business funds may be in either or both accounts. You will also need to make a plan as to how income and expenses are posted to or paid from the two separate accounts.
Where to Learn More
The best way to decide whether your partnership should use joint or linked accounts is to consult with a financial institution in your area. They can help all partners understand the controls they may choose to put into place as well as share tips from other clients who have opened both types of accounts. Contact a financing service to learn more about business checking accounts.Share