Opening a business bank account how and why you should do it

When you start a business, choosing the right bank account is imperative. Whilst you might just be starting off, having an account solely for your business can be extremely beneficial and something you will be grateful for later down the line as your business becomes more established. Here is our guide to opening a business bank account and why you should do it.

The benefits of having a business bank account

Reduce the risk of the account being closed

If you are using your personal account for business use, there is a chance the account will get closed if there are a substantial number of transactions that are clearly business related. If this were to happen, it will involve time and energy to rectify the mistake which will be a major inconvenience if you cannot access your personal account. Therefore, if you are starting a business, having an account specifically for this from the get-go will make your life a lot easier.

Some banks won’t allow business transactions

It is important to check whether the account you hold allows you to use it for business use. Some banks and specific accounts are not to be used for business transactions at all and doing so could lead to penalties. Taking time to check beforehand could save you a significant headache later on.

Manage finances better

Tax bills can be significantly reduced by deductible allowable business expenses. If there is only one personal account being used, it will be challenging to distinguish what is personal or business, and will be difficult to prove it is for business purposes when you are submitting your self-assessment tax return. If HMRC ever needs to investigate anything, it will be less intrusive if they only look at your business account as they do not need to delve into personal finances.

Keeping business purchases separately not only makes sense for tax reasons but also provides a clearer picture of the success of the business. This clearer picture will make it substantially easier to make future business decisions, without being muddied by personal purchases.

Creates a professional look

Having a business account can help you come across as more professional to your customers. This in turn can help your business seem more trustworthy as customers can be put off if they are paying an individual rather than an established company.

Build credit rating

As soon as you open a business bank account you can start to build up your business credit rating which will mean your personal credit rating is not taken into account. Building your business credit rating is vital when you need to access funding in the future from bank loans or investors.

To ensure your business credit rating is as strong as possible, ensure you do not default on any loan payments and do not exceed any pre-arranged overdrafts.

Additional account benefits

One potential drawback to having a business bank account is there are usually small charges associated with these bank accounts. The plus side is that business accounts also often come with additional benefits which makes the account fee negligible. Tools to help invoicing, integration with accounting software, access to business advice, perks, discounts, and more.

Opening a business account- how to get started

Once you decide to open a business account, it’s important to find an account that is a good fit for you. Spend time researching before you commit to one account. There may be benefits to choosing an account with the bank you already use for your personal account or you might want to go with a completely different company that is offering better rates and benefits.

Don’t forget that you are not limited to one business account. You may want to open more than one for different aspects of your business but remember that this will involve more administrative tasks.

Choosing a business bank account

Finally, remember that when choosing a business bank account you do not need to go for one of the big high street banks. Whilst you may find choosing one of these banks more comfortable, knowing you can go and visit them in a branch, they are not the only option. Online banking options such as Monzo or Revolut are also great alternatives that might be more what you are looking for. It will completely depend on what you are wanting. When comparing bank accounts, consider the following

• Whether you can do online / mobile banking
• Whether they have in-branch options
• Overdraft facilities
• What is the monthly fee?
• Are there any other additional fees?
• If they offer both debit and credit cards
• Any additional services such as invoicing tools or business advice
• Any additional perks

Next Steps

Once you have decided which bank you want to go with, you may need to go to a meeting to set up the account. Some banks will let you do this online. It can take up to four weeks to open a business bank account so bear this in mind. Information such as your business name, address, companies house registration (for limited companies), and information about what your business does is all standard information that you will be asked for during the application process. In addition to this, some banks may want to know more in-depth information such as business plans and expected cash flow.

Work with your accountant

If business plans and cash flow information is needed, then work with your account to refine the business plan. They will be able to advise you on this and also can help ensure you are equipped with everything you need to make the application process go as smoothly as possible    

Is a business account a legal requirement?

There is no legal requirement for a sole trader or limited company to have a separate business account. However, trading can become more challenging over time without one. Business finances are more difficult to track which can cause problems later down the line, especially if you are wanting the business to grow. Not being able to see the business’ true finances easily can hinder growth analysis and could make gaining future investment harder.

If you are a limited company, the company is seen as a separate entity from the owner. The money belongs to the company, not the individual and therefore it makes sense to have a dedicated business bank account.

No matter if you are a freelancer or a sole trader, having a business account is extremely advantageous and is the perfect way of keeping all your business and personal finances separate. Not only is this easier when it comes to doing your business accounts, but it ensures all your business activities and expenditures are easily identifiable and also means you can get the benefits of having a dedicated business bank account.