There are clearly many things to consider as you set about starting your own business. One of the most important will be how you handle your money.
You've seen those dedicated cashier stations in the banks and the army of busy looking movers and shakers that frequent them, armed with all manner of weird and wonderful envelopes. Now it's time to decide whether you should join their ranks.
There is no law that states that you must have a specific commercial account for your business, as defined by the bank or building society. But you will need to keep the money you earn separate from your personal funds. If you do not need the extra facilities that a business banking account provides, a normal current account or even an open access savings account will do.
However, these days the services available through business bank accounts extend much further than simply holding your cash, providing you with change and making transfers. The banks are placing a heavy emphasis on measures which will help you to grow your company. And why wouldn't they? The more business you do, the more business they do.
Additional services that are available through the various high street business banking accounts include:
- Business planning and accounting software provision, with trials and introductory offers
- Personal and dedicated relationship management
- Payroll management up to a certain number of employees
- Best practice guides, seminars and courses across a range of business practices
- Access to professional legal and accounting advice
- Localised market knowledge, both domestic and for exports
- Cash-back and other reward schemes
- Access to meeting facilities
- Cloud based data hosting and back upSupplier credit checking facilities
How much does it cost?
It is worth scouring the market for introductory offers which usually provide a grace period for start up businesses of between six months and two years. During this time you won't have to pay the monthly charge of between £3 and £10 and many, if not all, of the standard individual services will also be waived. As a rule, you are deemed to be a start-up business if the company has been trading for less than a year.
Thereafter, you'll face charges for the day-to-day services you use. The prices fluctuate from bank to bank so you'll need to try and ascertain exactly which services you are going to need and find an account that fits best. Things you can expect to pay for, with a typical cost in brackets, include: paying in and withdrawing cash over the counter (40p - £2 per £100); cashing cheques (40p – 70p each, after an allowance); sourcing change (£1.50 per £100); bankers drafts (£10 - £20); stopping cheques (£10), copies of statements (£2.50 - £5), CHAPS transfers (£25); and audit letters (£25). Some banks even charge for withdrawing money using your business debit card.
Most banks also offer a grace period when you switch to them from elsewhere so keep this in mind when you come towards the end of your initial period. Unlike repeated balance transfers on credit cards, this won't affect your credit rating, provided everything's in order with your account. However, by this stage you're likely to only save on the monthly fee; most of the day-to-day charges will apply.
Some accounts charge according to the size of the business by turnover and some premium accounts feature reduced rates.
Business bank accounts usually have higher rates of interest payable on overdrafts than normal current accounts and you will also incur arrangement and renewal fees. However, you may be able to negotiate a much higher limit than you would on a personal account. Some business accounts will also carry a separate service charge for the overdraft facility. When you are 'in the black', the law states that banks must pay small businesses interest at a minimum of 2.5% below the base rate. There are also Shariah-friendly Islamic business accounts on offer which don't charge or pay interest but a positive balance is usually required.
It's worth noting...
Cheques are due to be phased out in 2018, although there's still some contention surrounding the matter – MPs and charities are pushing for a reversal of the decision as they say the alternatives are too complex for vulnerable people and leave them susceptible to fraud. Whether or not they are eventually wiped out altogether, the use of cheques is certainly falling fast while internet, telephone and BACS transfers are on the rise. Depending on your circumstances, this might influence the way you compare costs.
What you'll need
To set up a business bank account, you'll require:
- Proof of identity
- Evidence that you are a sole trader or are a partner or director of the business
- Personal details of any other business partners and directors
- Business details, including annual turnover, employee numbers, registered name and company registration number
Most banks allow you to apply for a business account both online and in branch but, like most financial products, you will be subject to a credit rating test.
Look to the future
During the recession, many businesses experienced difficulties in obtaining funding. One of they key things the banks reported was that in order to lend money responsibly and ensure that the problems they received through bad debt are not repeated, they need to be able to properly analyse that business' performance and plans. They say they need more information than ever.
A good relationship with the bank can therefore be vital. If you think that you are going to need commercial funding at some stage it might be a good idea to research which banks have the best record in lending money to businesses of your size and in your industry before you choose which bank to open your account with. Similarly, check out which banks are currently lending the most through the Government's Enterprise Finance Guarantee Scheme.
You can change banks, of course, when you reach the stage that you need funding, but if you need it in an emergency you might find you do not have time.
Some other things to think about
Some banks don't provide counter service for entry-level business account holders.
The banks all say that switching over to them is an easy process but it's not just down to them – the bank you're switching from also has to play ball. Anecdotal experiences from your peers could help you make your initial decision.
As previously stated, you're under no obligation to open a business account. If you don't need it, keep it simple.
To compare business current accounts from the UK's leading providers click here.