The following guide provides useful advice on what to consider when choosing a business bank account. Having a good relationship with your bank should be a priority especially if you are planning to take out a business loan and secure lending in the future. Whichever bank you decide to open your business bank account with, it needs to be convenient, flexible, cheap on charges, easy to get finance from and quick. Relationships are always key especially if you looking at other products in the future such as business loans and mortgages. Check out our guide below which provides useful advice for any new business owner looking to find a suitable business bank account. We have also included various links to other sources of useful information to help you make the best decision.
What is a Business Bank Account?
A business bank account is similar a personal bank account but enables you to keep your business finances away from your personal account. The benefit of having a separate business account is that you can manage your business cash flow, expenses and tax liability much more easily.
Limited companies or partnerships must have a business bank account and company formation providers will normally offer the option to set up a company bank account during the process. Sole traders do however tend to use their personal accounts for business transactions though even as a sole trader the benefits of having a separate business bank account are obvious.
Don’t Automatically Open a Business Bank Account with your Existing Bank
Your current bank may not offer the best value for money on a business bank account. A good business bank account will offer benefits such as good rates of interest and low charges. Decide how you will be banking and making payments. If online, look out for low charges on electronic transactions. You should choose a business bank account that provides online business banking so you can check your account at any time.
Compare Business Bank Accounts – Comparison Sites
There are various banks offering business bank account so investing time initially will ensure that you don’t regret your decision later on. Some small business owners who set up as sole traders may use their own personal account initially in the early stages of starting a new company. If setting up a limited company, you will need a business bank account from the start. Check out comparison sites such as money.co.uk and Moneysupermarket.com which compare charges and benefits being offered on business bank accounts across well established banks.
Comparison sites can show you what each bank is offering including the following;
- Interest rates
- Monthly fees
- Overdraft facilities and rates
- Foreign currency facilities
- Free business banking
- Online banking
- Mobile apps
- Free day-to-day business banking on electronic payments, cheques, cash, deposits and withdrawals
- Free text and email account alerts
Standing charges will vary from bank to bank. Some banks may charge a monthly or quarterly fee for banking with them. In some cases a monthly fee may replace transaction charges or it may be in addition so make sure you research charges thoroughly.
When you compare charges, make sure that you look closely at the standing charges and transaction fees from each bank. Depending on how many cash or cheque transactions you are making monthly, a business bank account with a monthly standing charge may be better. On the other hand if banking online and make payment electronically, a business bank account with transaction charges but no monthly standing charge may be cheaper.
A transaction charge is the fee that a bank will charge for handling cash going in and out of a business bank account. These charges will apply to credits and debits. A transaction charge may apply to a physical transaction which may include processing cheques or paying in cash. Other transaction charges may apply to automated payments such as direct debits or standing orders.
When comparing business bank accounts, research transaction charges and standing charges so you can choose the most suitable bank. Think about how you will complete the majority of transactions whether physical transaction such as paying cash or cheques or automated via online banking.
How to Minimise Your Transaction Charges
- Compare business bank accounts to find a bank that offers cost effective transactions
- Stay within your overdraft limit
- Complete your banking online (there are normally charges for physical transactions such as cash or cheques)
- Automate payments with standing orders and direct debits
Online banking is essential in today’s climate. Managing your business will involve paying in money, making withdrawals, managing cashflow and paying bills.
When choosing a business bank account, make an appointment with an advisor so you can discuss online banking facilities. Online banking allows you to monitor your business income and spending within minutes and in the comfort of your own home.
Benefits of Online Banking
- Checking your balance at anytime (access to a computer required)
- View statements
- Make payments faster by paying electronically
- Setting up and manage standing orders and direct debits at any time
- Transferring money between bank accounts
- Secure way of banking
- Convenience of not having to visit a bank account
Obviously if you need to get to a bank regularly then location will be an important consideration. If depositing takings daily or weekly or needing to visit your bank manager then the location of your bank will need to be part of your decision process.
Small Business Support
Many banks now offer dedicated small business support via online forums or centres. They can be great source information and building strong relationships with the banks small business manger can allow them to better understand your business. Keep in regular contact with your bank as you never know when you may need support or finance.
Links to Banks Offering Business Bank Accounts