Creating a micro-entreprise is a significant moment in a person’s professional life and it’s a process that raises many questions. Amongst the topics to consider is where to store the company’s cash : do you need a dedicated business account or will a standard current account do the trick? Should you use a traditional bank or an online solution geared exclusively towards businesses?
Here, we will examine the case for opening a business account when you’re a micro-entrepreneur.
Is opening a separate business bank account a legal requirement?
In France, some entrepreneurs are legally required to open a dedicated business bank account. That is the case for those creating a company with a legal status such as SAS, SARL, EURL etc., whereby a business account is needed to deposit the company’s social capital. After obtaining a capital deposit certificate, the business owner is able to add his or her company to France’s commercial register (Registre du commerce et des sociétés, or RCS), then receive a SIREN number and officially launch the company.
Micro-entrepreneurs are not concerned by this legal obligation; if their annual turnover has been over 10,000€ for the last two years, they can simply use any account that’s dedicated to their business activity. That could be a business bank account or a second personal bank account for their micro-entreprise. The only requirement is that all business-related transactions must be separate and clearly traceable.
The law is designed to help the State combat tax fraud. As such, the micro-entrepreneur must use this separate account to make business-related purchases, pay social charges and receive revenue.
Good to know: the PACTE law of May, 2019 (link in French) removed the legal obligation for micro-entrepreneurs to open a separate account for their business activity if their annual turnover is less than €10,000€. These micro-entrepreneurs can choose to open either a business or personal account. Although it is not mandatory, business accounts are nonetheless recommended because of the practical benefits they bring.
What’s the difference between a business account and a personal account?
Banks make a distinction between business and personal accounts. The former is reserved for entrepreneurs and companies, whereas the latter is designed for personal individual use. In both cases, the account comes with an account ID (in France, a RIB) and a payment card and offers the possibility of making online payments, transfers and direct debits.
A business bank account provides micro-entrepreneurs with useful additional services, including access to a payment terminal (payment card machine) and accounting tools. Monthly subscriptions and banking fees are usually higher for business accounts however. ****
While, in theory, self-employed workers have the right to open personal accounts for their business activity, in practice not all banks will allow this. These banks would rather offer micro-entrepreneurs business accounts, which have more advantageous fees (more advantageous for the bank, that is.) They can also refuse to open a personal account.
The banks’ goal in this sense is to force the micro-entrepreneur to subscribe to a business account. Luckily, there are solutions on the market that are tailored to self-employed workers, such as online business accounts like Qonto, Shine and N26.
The benefits of opening a business account for micro-entrepreneurs
For those self-employed people setting up their micro-entrepreneur business, it might be tempting to opt for a personal account in order to reduce the amount of banking fees. But the business account does bring benefits that shouldn’t be ignored.
Clearer visibility over company finances
Micro-entrepreneurs can use a business account to separate their company finances from their personal money in a current account. This allows them to enjoy more transparency and clarity; there is no confusion between personal money and the company cash flow, and accounting is easier for both the private and professional spheres.
Thanks to a business account, an entrepreneur can more easily manage the company’s bookkeeping and analyze with greater precision the financial situation of the business. For example, a micro-entrepreneur can :
- assess turnover more accurately and more quickly;
- forecast the amount of social charges to be paid;
- easily draft budget projections;
- optimize cash flow by identifying any late payments from customers;
- minimize spending on his or her main expenditure items to increase profitability;
- calculate the salary they should pay themselves in order to optimize their company treasury.
Justify expenses in case of an inspection
Thanks to the advantages of the micro-entrepreneur status, freelancers and self-employed workers enjoy a certain amount of flexibility when it comes to managing their business. But even if the accounting obligations are more relaxed than for other types of companies, accurate bookkeeping is still a legal obligation. This means, for instance, keeping invoices, receipts and proof of purchase for all incoming and outgoing transactions. Micro-entrepreneurs must provide all the requisite documents if they are inspected by URSSAF.
If a micro-entrepreneur doesn’t have a dedicated bank account for their business activity, the tax authorities will investigate their personal accounts. And if it’s difficult to distinguish professional revenue from personal income, the tax administration might base their estimations of social charges for example.
On the other hand, if this micro-entrepreneur does in fact have a separate business account, they can easily demonstrate compliance in the event of an inspection. Since their business transactions are kept separate from their personal ones, the entrepreneur can easily provide documentation to the tax authorities. In a way, holding a business account as a micro-entrepreneur is a show of good faith to the tax administration.
Access to additional services
Opening a business account gives micro-entrepreneurs access to offers and services that are exclusively reserved for businesses. Financial institutions provide their business clients with ways to issue and receive payments that are best suited to their setup, like bank cards with high spending limits, or payment terminals.
Micro-entrepreneurs can also benefit from dedicated services for their business thanks to their small business account, such as:
- invoice management;
- higher overdraft protection;
- access to professional insurance;
- the ability to apply for a loan to finance their business;
- a dedicated banking advisor who corresponds to their business needs.
Good to know: these services can prove quite useful for a micro-entrepreneur, not only as a means of saving time, but particularly to lower the risk of accidental omission or error when declaring their business revenue to the authorities.
How to choose the right business account as a micro-entrepreneur
Traditional banks
Traditional banks are the number one choice for micro-entrepreneurs who value in-person customer relations. These banks leverage the convenience of having brick-and-mortar locations just about everywhere in France to provide their clients with a full range of services. Not only can they offer customers a unique relationship with a dedicated bank advisor, but they also provide physical bank cards, checkbooks and cash deposits, as well as savings and credit services.
While this solution can often feel like a trustworthy option for micro-entrepreneurs looking to open a business account, it also has some major inconveniences:
- the service fees aren’t always clearly outlined and can quickly chip away at one’s revenue;
- the process of opening an account can be long and complex;
- often these banks aren’t very responsive, which forces the micro-entrepreneur to physically go to a branch to perform even the most basic transactions.
As a result, more and more micro-entrepreneurs are turning to neobanks and professional accounts that are exclusively dedicated to their business.
Online banks or neobanks
Online banks or neobanks are often better suited to the micro-entrepreneur’s economic environment since they exist exclusively online. You can open a business account from home in just a few clicks, and any bank transaction can be performed on the web or via a mobile app.
It’s a good alternative for the micro-entrepreneur looking to open a business account since the rates are lower than those of a traditional bank.
That said, neobanks and online banks aren’t a catch-all solution for micro-entrepreneurs. Sometimes they limit the number of transfers you can make, charge for check deposits, or provide you with a foreign IBAN, which complicates things when comes the time to pay government agencies.
Dedicated business accounts for micro-entrepreneurs
Professional bank accounts geared exclusively towards small businesses are a convenient option for micro-entrepreneurs, and are offered both by banks and specialized providers like Qonto. It’s easy to open and manage your account, whether it be from your desktop or using an app.
Freelancers who opt for this setup enjoy many benefits, such as:
- real-time views of their transactions, where they can receive instant notification every time their payment card is used;
- clear and comprehensive fee structures;
- access to different ways to pay and get paid (bank cards, payment terminals, free transfers, etc.);
- automatic VAT detection on purchases;
- the ability to connect one’s accounting software to their account;
- an IBAN from the micro-enterprise’s “home” country;
- access to competent customer service.
Opening a business account geared towards micro-entrepreneurs is generally a good idea, no matter the size of your revenue, and it offers many advantages that can help support your business activity. However, when it comes to making the right choice, it’s important to ask yourself the right questions. Do you need help with invoicing, accounting, or cash flow management? Foreign transactions? Do you need a payment terminal or a payment card?
While it’s good to look out for rates, it shouldn’t be your only base of comparison when you’re looking to open a professional account for your micro-entreprise.