Business bank account guide
What is a business bank account?
A business current account works in a similar way to a conventional bank account, but enables you to keep your business transactions separate from your personal finances. This makes life much more straightforward when it comes to managing cash flow and calculating your tax liability at the end of the year.
Anyone who has started up as a limited company or partnership must have a business bank account. The most basic business accounts consist of a chequebook and paying in book.
If you are a sole trader you can use your own personal account, but many people still prefer to set up a separate small business bank account. Business accounts are also available for charities and clubs, pension funds and client's money.
What to watch out for
Don’t automatically open a business account with your existing bank, as it might not offer good value for money.
The best business bank accounts will offer you both low charges and decent rates of interest when you are in credit, so make sure you compare accounts to find the right deal to suit your requirements. If you think you will mainly be making payments electronically, go for an account that offers free or low-cost electronic transactions. Alternatively, if you think you'll be using a lot of cheques, look for low charges on paper transactions.
You should look for an account which provides online business banking, so that you can check the status of your account day or night.
Remember that you will need to provide various documents in order to open your account, including a business plan and details about your company. These will include your Certificate of Incorporation if you have set up as a limited company, as well as documents proving your identity such as a passport and driver’s licence.
Unfortunately if you have a history of bad credit, opening a business account is likely to prove difficult, especially given the current economic climate.
Most UK business bank accounts come with an introductory offer such as free banking for 12 or 18 months. While these are tempting, always make sure you know how much you will end up paying once the introductory period is over.
As a general rule, the more transactions you make on the account, the higher the charges are likely to be.
Some business current accounts require a regular monthly or quarterly standing charge. This will typically cost you around £15 to £20 per quarter, but a there are plenty of accounts which don’t charge this fee at all.
Make sure you read the small print carefully if you go for business current account which offers free banking indefinitely, as these usually only let you pay in a set maximum each month and a limited number of cheques, which would be no good if your income is going to vary dramatically from one month to the next.
Some banks have a dedicated small business advice team, while others offer a telephone helpline, so check to see what is on offer when comparing accounts. Branch-based chains of advisers can be useful if you want face to face contact to discuss any issues that might affect your business.