Everything You Need To Know About A Business Bank Account
What is a business bank account?
As a business owner, it’s important to have a dedicated bank account for your business finances.
A business bank account can help you keep track of your income and expenses, and it can also help you manage your cash flow more effectively.
Business bank accounts typically offer features like online banking and mobile deposit, which can make it easier to manage your money on the go.
They may also offer higher interest rates than personal bank accounts, which can help you grow your business savings more quickly.
Whether you’re just starting out or you’ve been in business for years, a business bank account is a valuable tool for managing your finances.
How does a business bank account work?
Businesses need bank accounts for the same reason that individuals do: to store, manage, and grow their money.
But there are some key differences between a business bank account and a personal one.
First of all, businesses typically have more transactions than individuals, so they need an account that can accommodate a higher volume of activity.
Businesses also often have diverse needs, from accepting payments to paying vendors, so it’s important to find an account that offers a variety of features.
Lastly, businesses usually have complex financials, so it’s important to find an account that provides robust reporting and analytics.
Business bank accounts can be a great tool for managing a company’s finances, but it’s important to understand how they work before opening one.
How to open a business bank account
Opening a business bank account is pretty simple, and there are several different options to choose from.
You can visit your local bank or credit union, or you can open an account online.
Once you’ve decided where to open your account, you’ll need to provide some basic information about your business, including your business name and address.
You may also need to show proof of your Business Registration Certificate.
Then, you’ll just need to deposit some money into your new account and start using it for your business transactions.
Who can open a business bank account?
Anyone who owns a business or is planning to start one can open a business bank account.
Requirements vary by financial institution, but typically, you will need to provide documents such as your business license, tax ID number, and other paperwork that proves ownership of the company.
You may also be asked for evidence of an operating budget and proof of revenue.
These documents will help ensure that the bank understands your business and its financial needs.
Depending on the type of account you open, you may also need to make an initial deposit or have a minimum balance requirement.
Once your paperwork is in order and the account is opened, you should be able to start managing and growing your money with ease.
Types Of Business Bank Accounts
There are a few different types of business bank accounts, including current accounts and savings accounts.
Business current account
A business current account is a type of bank account specifically designed for businesses.
It allows you to deposit and withdraw money, as well as make payments to vendors.
Typically, these accounts offer features like online banking and mobile deposit, which can make it easier to manage your finances on the go.
They may also offer additional advantages such as higher interest rates, overdraft protection, and more.
Business current accounts can be a great way to manage your income, expenses, and cash flow with ease.
Business Savings Account
A business savings account is an important tool for managing your company’s finances.
It allows you to earn interest on your money and separate your business savings from other accounts.
These types of accounts typically offer higher interest rates than personal bank accounts, which can help you grow your money more quickly.
Many business savings accounts also offer features like online banking and mobile deposit, which can make it easier to manage your finances on the go.
Online Business Account
An online business bank account is an increasingly popular way for companies to manage their finances.
It allows you to access your account from anywhere, at any time and makes managing your money easier than ever before.
Online accounts offer a variety of features such as mobile banking, bill payment services, and more.
They also tend to have higher interest rates than traditional banking accounts, allowing you to maximize your returns.
For businesses of all sizes, an online business bank account can be a great way to stay on top of your finances and grow your business.
Free Business Bank Accounts
Free business bank accounts are an attractive option for startups and small businesses that don’t have a lot of capital to invest.
These types of accounts offer many of the same features as traditional banking accounts, but without the monthly fees.
Many free business bank accounts also offer online banking and mobile deposit capabilities, making it easier to manage your finances on the go.
A merchant account is a type of bank account that allows businesses to accept payments from customers in various forms, such as credit cards and debit cards.
These accounts provide access to payment networks, allowing you to process transactions more quickly and efficiently.
Merchant accounts also offer features like fraud protection and transaction reporting, which can help you keep track of your finances.
Do You Need A Business Bank Account?
Whether you are a sole trader, freelancer, contractor, running a limited company or in a partnership, it is really important to keep your finances organised. Having a separate account for your business is a sensible way to do this.
With a business account, you’ll keep work transactions separate from your personal money which will enable you to complete your accounting and tax returns in a more timely manner. And by managing a business account, you will build a business credit score for your business, which will be useful in the future if you need to take out a business loan or get a company credit card.
Business Account Or A Personal Account
Personal and business accounts both display similar features, and can be used for everyday transactions such as making transfers and paying bills.
However, business accounts should only be used for business transactions. Likewise, personal accounts are not generally designed for business use.
The advantages of using a personal bank account are that your money is all in place. You will also know how it works having used it a lot in the past.
Disadvantages include it likely being against the bank’s terms and conditions to use a personal account for business, which could lead to account closure.
If you have a Limited company you would be unable to use a personal as your business is a separate legal entity.
Do You Legally Need A Business Bank Account
If you’re self-employed, whether you need a business bank account depends on how your business is set up – i.e. whether you’re a sole trader or are in charge of a limited company.
If you’re self-employed and run your own limited company, the entity’s finances have to be kept separate from your own.
From the point of view of the HMRC, you are both the owner and the employee of a limited company. It is a separate legal entity from you and has to be treated as such. This means that you are required to open a different account for your business.
If you’re a freelancer operating as a sole trader, it isn’t a prerequisite to have a business bank account. However, it is likely you will find it useful for keeping your personal and business finances apart.
If you run your freelancing business as a limited company then things will be the same as the above, you do need to have a separate business bank account for your business funds.
You are not required to have a separate business bank account if you are a sole trader. Your business is not a separate legal entity from you, meaning a separate account isn’t a requirement.
You might want to set one up to keep your work finances clearly separate from your own regardless of this as it will help when it comes to completing your self-assessment tax return, as you won’t have to distinguish between the different transactions to find which were business expenses.
If having a limited company, you will definitely need a business bank account. This is because your company’s finances are legally separate from your own.
Again, this should help you when it comes to paying your tax bills – it will be easier to work out what you owe when all your business income and outgoings are listed in a separate account.
How To Compare Business Bank Accounts
Comparing business bank accounts is an important step in finding the right account for your company’s needs.
Before you start comparing, it’s important to think about what features are most important to you and your business.
Consider factors such as interest rates, fees, online banking capabilities, and customer service.
Once you’ve identified the features you need, you can compare business bank accounts to find the one that best matches your needs.
By taking the time to compare different accounts, you’ll be well on your way to finding an account that works for your company.
Deposits And Withdrawals
It’s a good idea to find out whether you have to pay for deposits and withdrawals, and if you get a certain number free per month, or if they are all included in one monthly price.
Ascertaining where you can deposit cash or cheques is also necessary. Certain types of business accounts may not accept cash or cheque deposits, while others let you deposit funds at the Post Office, at a PayPoint or at a branch.
If you open a business bank account it will usually come with certain fees attached for its usage. It’s important to check these first, as they can vary greatly.
Fees are charged in one of two ways.
Monthly Or Annual Fees
It is not unusual for business bank accounts to charge a monthly or annual fee. You may receive some transactions and services included for ‘free’ as part of the account, but you may also have to pay extra for other features. If you have a business that makes lots of transactions each month, this is likely to be a more cost-effective way of paying for your business bank account.
Fees Per Transaction
It can often be the case that this type of business account will be advertised as ‘free’ or ‘no monthly fee’. But you will end up paying for the service through fees for certain transactions, such as transfers or cash withdrawals. If you aren’t going to use your account much and will not make many deposits or transfers, then this type of account is likely to work out cheaper than paying a monthly fee.
If the intention is to use your account to make lots of transfers, it’s important to know whether you have to pay for these individually or whether they’re included in one monthly fee. It will almost certainly be the case that one option is significantly cheaper than the other.
For example, if you have to pay 20p per transfer and you make 100 transfers per month, this would cost you £20 per month. If an account had a £5 monthly fee with all transfers included, this option would obviously be the way to go.
Not every bank will allow you to make international transfers, so make sure to check this if it’s something you’re going to need.
Standing orders can be set up with a business current account. Standing orders let you pay another account a fixed amount on a specified date, at a frequency you choose. For example, you could set up a £50 payment to go out to your business savings account every month on the 28th.
Direct debits are also able to be used with a business current account. These may be used for paying your business utility bill, for example. You set up a direct debit agreement with the company, and it can then take a pre-determined amount of money out of your account for an agreed duration.
It’s normal for a business current account to come with a debit card, which will allow you to pay for goods or services, and take out cash from an ATM.
It’s possible to be able to get multiple debit cards for your account. If you wanted to give debit cards to employees to enable them to pay for expenses, this would be an option. Availability depends on the provider, so it’s worth checking if this is something you’re interested in.
Having a mobile app that goes with your business bank account is important. This allows you to keep track of everything whilst on the go.
An overdraft facility can be a useful tool for those months where cashflow isn’t particularly good. This allows you to borrow money on a short-term basis, but your eligibility for an overdraft facility will be dependent on your individual circumstances.
It’s important to know how and where you are covered when having a business bank account. Accounts with UK banks can be protected by up to £85,000 by the Financial Service Compensation Scheme (“FSCS”).
Deposits with e-money providers are not protected by the FSCS. However, e-money firms are regulated by the Financial Conduct Authority (“FCA”) and must follow safeguarding procedures when dealing with customers’ money.