Choosing a business bank account
There is lots to do when you set up a new business. One of the most important is ensuring you’re set up to get paid! Once you have decided on a business structure and registered your business (if Limited), the next item on your ‘to do’ list should be choosing a business bank account.
I’m often asked questions around business bank accounts. Here are a few areas to consider when selecting your business bank account.
Do I need a business bank account?
If you are setting up as a Limited Company – yes, you need a specific business bank account that is in the name of your Limited company. There is no legal requirement for Sole Traders to have a separate business bank account, however, this is highly recommended. It keeps your sole trader business’ finances completely separate from your personal finances making it easier to manage.
What ‘type’ of account do I need?
When setting up the bank account – select a Business account, and your appropriate business structure. The bank will do relevant identity checks on you and your business, therefore if you’ve selected Limited Company, they will check the details with Companies House, as well as carry out identify checks on all named Directors. Sole Trader businesses will get asked to provide identity documents for you as an individual business owner.
What functionality/facilities do I need, and what are good to haves?
Be clear about what your business banking needs will be. Do you accept cash, therefore need a branch or somewhere you can deposit cash? Do you want a cheque book (although, these are almost obsolete nowadays)? Do you want to have easy access to speak to customer services? Do you want your business account to sit in the same place as your personal finances? Do you want accounting software to go with your business bank account? Do you want a business savings account as well?
What is important to you?
Answering the questions above should help you understand your absolute needs and the ‘good to haves’ for your business bank account. Now prioritise! Is having a branch to pay-in cash more important than having access to free accounting software? Is ease of use, e.g. an App, more important than having low or free banking charges?
Research!
In the main, most business bank accounts do the same thing! Some will not have options that work so easily for you however, e.g. App-based bank accounts don’t have branches, so depositing cash could present a challenge as you may need to use a specific partner bank or Post Office to deposit cash. Some bank accounts don’t offer cheque books at all anymore. Research what you need and the cost – many banks will offer free or low-cost for sole traders, or for the initial few months, then the charges will increase. And, try not to be swayed by things like offers of free accounting software unless you really will use the software!
App-based vs High Street Banks
This really comes down to your needs and preferences. An app-based bank account will largely give you the same banking service, without the branch. For businesses that don’t need a branch to pay-in cash or cheques, an app-based account may be ideal, particularly as their fees can often be lower than High Street banks. You get the same level of protection under the Financial Services Compensation Scheme as a High Street bank.
Link your payment providers
Once you have set up your business bank account, you will be able to link any external payment providers you use to your account, e.g. Stripe, Paypal, GoCardless etc, ensuring customer funds paid via card payment will be able to be deposited into your new business bank account.
Switching bank accounts
Similar to switching a personal bank account, switching business accounts is not too difficult. Most banks offer a switching service, meaning any existing Direct Debits will be moved to your new account without you needing to do anything. You will still need to ensure you change any recurring debit card payments or standing orders…and don’t forget to tell your customers who pay directly into your bank about your new bank account! Once you switch, before you close your old bank account, ensure to download all bank statements and keep with your accounting records for the appropriate retention period (which depends on your business structure).
If you’re still undecided on what structure to choose for your business, click here to access my free download outlining the main differences between a Limited Company and Sole Trader business.
