Originally written by Ben Lobel on Small Business
New start-ups and part-time business owners have a habit of co-mingling their finances with their personal money, and while it may be the easiest, most convenient and cheapest way of operating, it can have its drawbacks – especially further down the line.
Any prospective business owner should treat their business as a business, regardless of whether it’s a part-time venture or not; while setting up a separate business bank account means additional bank fees and expenses, you are also storing up a lot of hassle for yourself in the future.
And while many business current accounts available charge you for their services, there are others that waiver the charge as long as you pay in more than a certain amount each month.
Make sure that you shop around for the best options and you can take advantage of the best deals – don’t assume that your personal bank will be the smartest choice for business use.
Why you need a business bank account
It’s a rule that only true businesses can deduct business expenses – running your business with your personal account may seem as though it’s more of a hobby business (i.e. not-for-profit), and you may have to prove otherwise.
The time of the tax return
Trying to get your taxes in order can be a pain at the best of times, let alone when you’re trying to navigate your way through your personal finance statements to find the business-related expenses.
Personal transactions have to remain completely separate from business ones, which is bound to be more complicated if you’ve combined them.
It would also be easy to miss deductions if you’re searching through your personal current account.
If you operate from a separate business bank account, you’ll be able to provide a clear audit trail, too.
If your business operates from its own separate business account you will be demonstrating complete professionalism too – definitely a plus point when working with clients and attracting new business.
What is a business bank account?
Most banks offer the option to open a dedicated business bank account. You’ll have access to business-related financial products – such as loans, credit cards and overdrafts – to help you as your business needs change, whether that’s paying for everyday running costs or investing in your scale-up plans.
- Budgeting tools
- Automated expense categorisation
- Account management
- Integration with accounting software
8 questions to ask when you’re looking for a business bank account
#1 – Does it offer free banking for joiners?
Normally, new businesses get charge-free periods (e.g. first 12 or 18 months), possibly followed by discounted standard charges or fees for a fixed period. Less generous introductory deals are also available to businesses that want to switch banks.
>See also: What are the best business bank accounts in the UK?
#2 – Does it offer an overdraft facility?
#3 – Will you have a business relationship manager?
Having somebody on the end of a phone or an email who understands your business, and preferably can make lending decisions themselves, is also helpful. Better that than an anonymous call centre and “computer says no.”
One effect of the COVID-19 pandemic has been to drive us all to online and mobile banking. However, the user experience of high-street banking apps varies wildly. According to the most recent Competition and Markets Authority August 2020 survey, Barclays has the mobile banking and online service which most SMEs would recommend to other small businesses.
#5 – Is it online only or does it have branches?
Digital banks have no branches at all, which can be frustrating if you have cash or cheques to pay in. Metro Bank, on the other hand, takes the opposite view and has grand foyers to encourage walk-ins.
#6 – Does it offer wider ‘how-to’ support?
Yorkshire Bank, for example, includes “how to” guides, online training modules, videos, tools and calculators. The tools and calculators include a start-up costs calculator, a break-even calculator, and a SWOT (strength, weaknesses, opportunities and threats) analysis template
#7 – How long does it take to open an account?
Several factors can speed up the process, such as:
- If you’re already registered at the bank with a regular current account
- If you’re a sole trader as opposed to an incorporated company
- Certain banks provide a faster service – some banks provide their estimated processing periods online
#8 – Does it offer unlimited transactions?
Some business bank accounts only allow you to make a number of transactions each day. Other banks only allow one or two methods of making deposits or withdrawals. Best to go for a bank that allows unlimited transactions, as well as online and in-person credits and withdrawals.
What happens when my free banking period is over?
Businesses normally pay monthly bank account fees of anything between £5 and £7.50 for high-street banks once introductory periods are over.
- Withdraws cash
- Pays by cheque
- Pays in a cheque
- Pays cash in
- Pays by bank transfer
- Uses or goes over its overdraft limit
- Receives a card payment
- Receives foreign currency payments from overseas
When researching which business bank account to open, ask what the bank will charge you for and when. Some high-street banks offer smaller fees for online transactions, reflecting the absence of individual service involved.
Do you need a business bank account? Which one is right for you?