Whether you’re just starting up your own business, or you’ve already been trading for a while, you might be wondering if opening a business bank account should be high up on your to-do list.
Running a small business can be hard work at the best of times (trust us, we know!), but we think opening a business bank account early on is a great idea, and definitely worth the effort.
Before we go into any of the reasons why you should open a business account, it’s best to first answer the question – do you need to open a business bank account?
Do I need to open a business bank account?
If you’re a limited company, or that’s how you plan to run your start-up, yes. As your company is a separate legal entity, it’ll need a separate bank account too.
Think of it this way – one of the main reasons to operate as a limited company is to limit your financial liability as a business owner. This also means that takings belong to the business, and you’ll need to pay yourself with a salary, or dividends.
If you’re a sole trader or thinking of operating as one, then you don’t have to set up a separate business bank account (although you may still choose to).
Unlike a limited company, you are personally liable for business debts. This also means that all profit is yours, and taxable to you too.
That all said, we think you should be getting your business bank account sorted, pronto. Here’s why…
1. Separate your personal and business finances.
When you run your own business, there’s always a lot going on. Money will (hopefully) be flowing in, and out, of your business regularly.
Purchases for stock or services provided by suppliers might be easy to spot on a bank statement, but how about that stationery you bought, or the coffee before a meeting?
If you have a separate business bank account and debit or credit card, once you get in the habit, you’ll be putting all your business expenses on that in no time.
Aside from keeping your finances neat and tidy, your bank might tell you to open a business account anyway. This is because a lot of personal account providers will have T’s and C’s that prevent you from using your account for business purposes. If there are hundreds of transactions or large sums going in and out frequently, they’ll soon notice.
And finally, even as a sole trader, just Imagine how complicated it’d get if you decided to employ people and only had a personal account!
2. Many business bank accounts come with perks and benefits.
One of the cons of business bank accounts is that they usually cost money, and you may be wondering if they’re worth it. These costs can range from monthly fees to charges based on deposits, transfers and withdrawals.
However, the good news is most of them also offer features, benefits and perks you just wouldn’t get when using a personal account for your business.
If you’re looking to accept card payments, for example, you’ll need a business account to do so. If your business does business overseas, you’ll want an account that processes foreign currency payments efficiently. Some accounts may even come with access to a personal adviser, which can be useful.
Running a business certainly keeps you busy. Having a business bank account that lets you access banking services, and manage your finances on the go, via app or telephone, is also important. The best business bank accounts let you do these things, of course.
3. Business accounts can sync with your accounting software and other apps.
As we mentioned above, the best business bank accounts, from high street banks to newer fintech companies, will have apps and features that enable you to make the most of your tech.
Whether it’s a mobile phone or a tablet, banking on the go and keeping track of business finances has never been easier.
Now of course we’re going to mention Xero because it’s at the heart of Freedom in Numbers. Automatic and real-time synchronisation of your banking feed in Xero means you’re always on top of the situation and armed with the information you need to make sensible financial decisions.
Many also sync with expense receipt capture apps, such as Hubdoc, and help you keep better track of your business purchases – a potential problem we mentioned earlier on.
Some of them will also let you set up a separate pot to save for tax. This is important if you want to avoid any nasty surprises come self-assessment time. If you’re mixing personal and business finances, setting aside the right amount can be a lot trickier.
4. Save you time and makes life easier for your accountant.
We mentioned it just above, but self-assessment tax return time can be stressful for many business owners.
If you’re using a great business bank account alongside accounting software and making the most of the tech, keeping your finances organised throughout the year, you’ll save yourself a lot of time and hassle.
And you can trust us when we say, if you use an accountant, it makes things much easier for us too! We still see clients with mixed up accounts, and personal finances jumbled up with business ones.
It goes without saying, but if HMRC does ever decide to look into your business finances, you’ll also save a lot of time and stress by having the information kept separately.
5. Look professional, build a credit rating and access financial services.
To get a business credit card and access credit on other larger business purchases (think equipment, vehicles and so on), a business bank account is a must.
In doing this, you’ll also be building up a positive credit rating for your business. This makes it more likely that you’ll be able to access finance in future, including loans – one example being the Government’s bounce back loan scheme.
If you don’t have a business account, you won’t be able to access these financial services or products.
And finally, it may seem trivial, but having a bank account in your business name also looks professional, especially if you’re dealing with other large businesses. Much in the same way that some large companies will only work with a limited company, some may only make payments into business bank accounts.
We think opening a business bank account is a great idea.
So, you’ve guessed it, our concluding advice is to open a separate bank account for your business as soon as possible – even if you’re just starting out as a sole trader.
It’s usually a quick and easy process, especially if you use one of the newer fintech banks, and the pros far outweigh the cons.
If you do it now, instead of further down the line, you (and your accountant) will no doubt be thankful come the end of the tax year!
Banking and Xero – working in perfect harmony.
We can help you make the most of your tech and apps, including connecting your business banking with Xero cloud accounting software.
Our team will have you set up and sorted in no time.
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