Businesses up and down the country are growing increasingly aware of how to manage their finances effectively. One of the biggest questions they often ask is, how many bank accounts should I have for my business?
An increasing number of business owners are making the most of the digital revolution, getting to grips with digital banking. This means you can manage your finances with only a few quick taps on an app, instead of having to go into your local branch, saving precious time for your business. Check out the top online business bank accounts you can find today.
Bank accounts for businesses come in a variety of forms, and as you’ll discover here, there’s great flexibility in the types that you can seek to match the needs of your business. Let’s explore how many bank accounts a business might need.
How many bank accounts should a business have?
When it comes to giving specific numbers, there isn’t actually a limit to how many business bank accounts you can or should have necessarily. Provided that your bank approves an application to open a business bank account each time, it should be possible to open as many as you require.
This means you can have as many business current and savings accounts as suits your specific business needs. No two businesses are the same, and it can be beneficial to be able to split your finances across multiple accounts, so you can keep a close eye on your money, for the different things you’ll use it for.
If you’re a sole trader, you might be wondering if you need a business bank account to begin with. Sole traders are not actually legally required to have one, and a personal business bank account would be suitable. The reason for this is that, by virtue of being a sole trader, all business and personal income is directed to the same bank account, and would be treated as such for tax purposes by HMRC.
As the sky is seemingly the limit on the actual number of accounts you can set up, the important question you should really be asking isn’t necessarily how many business bank accounts can I have, but how many do I actually need to optimise cash flow, kickstart growth and manage my taxes?
You’ll also want to know how most businesses manage their finances, and below we look at some of the most common arrangements.
How many bank accounts does a business need?
At the bare minimum, you’ll need a business current account. This serves as a deposit account you hold with a bank, allowing the basic withdrawal and deposition of money.
In the world of finance, current accounts are often described as being very “liquid” - this simply means it’s very easy to access the cash held within them, whether that’s in the form of online bank transfers, cash machines, cheques and other access points.
While it can be possible to function as a business, relying on a basic personal current account, setting up a business current account can optimise your finances, as it helps simplify the way you pay tax, as well as enabling you to build up your profile as a legitimate business in its own right.
Crucially, opening a business current account helps start building up your business credit score.
Some accounts for small businesses can have a limit on the number of transactions you can make, with a fee to be paid if you wish to go beyond these limits in some cases. If you plan to make a number of frequent transactions in any given month, always make sure to do it through your business current account.
The normal set-up for many businesses
When people ask how many bank accounts a business can have, it’s important to consider what your requirements will be. Your business will have unique needs, and might require more or less accounts than other businesses in your sector.
One of the downsides of using a business current account is that your money won’t necessarily earn much in the way of interest over time, if it just sits there in the account for several months. If you want to find an intelligent way of depositing your money as a business to earn interest, this is where it helps to have multiple accounts.
The most important extra account worth considering setting up is a savings account. It should be possible to set one up with your existing bank, but it makes sense to choose and set up an account, having carried out the adequate research on which providers offer the best interest rates first.
The benefits of having multiple accounts over time are that you can now clearly demarcate between the account you use to pay for internal financial obligations such as expenses, and the account you’ll be using purely to save money over time.
One of the main reasons it’s also beneficial to draw a line between a more liquid current account and the more static savings accounts is that some of the money you earn as a business isn’t really yours.
Businesses all have taxes to pay and invoices to send, and it’s important to make a clear distinction between money that you only retain for brief periods compared to the money which you want to preserve and eventually reinvest back into your business.
Tax rates vary, depending on the size of your business, but it can make sense to have multiple accounts and to always know you have sufficient cash flow, adjusted for tax, so you’re not nervous each time you have to file those tax bills each financial year.
Safety in numbers with multiple bank accounts
It doesn’t happen often, fortunately, but businesses such as yours could be potential targets of hackers.
Putting all your eggs into one basket with just a single business bank account can be risky, as anyone who’s able to compromise that account could potentially stop your business in its tracks.
Opening more than one account serves as a form of insurance. A savings account is especially useful from a security perspective, as it could be your lifeline if your more liquid account should be compromised in any way.
If you want to take active measures to protect your business bank accounts from malicious activity, it makes sense to speak with your bank. You could see if any limitations can be set on how many withdrawals can be made, for example, which can help notify you and your bank when suspicious activity occurs in the future.
Having more than one bank account is a big responsibility, as you must frequently check in on each of your accounts to ensure everything is as expected.
Keep a particularly close eye on transactions so you can spot if there are unusual outgoings, whether it’s due to malicious activity or simply human error.
Watching your accounts is also a good indicator of overall business performance.
If you’re curious about the forms of accountancy software you have at your disposal, read our guide to managing your bank accounts as a small business.
Perhaps expenses were slightly higher in one month than the previous one - in that case, you might require a loan to cover costs.
If you’re curious to know more about the benefits of shopping around first, compare from a list of leading providers for the best business bank accounts for switchers today.
However you choose to manage your business finances, there are clearly great benefits to be had from having more than one bank account for your business.
Far from being an unusual way of managing your affairs, with money in several accounts, you can actually streamline the process and help make your business more financially savvy in the future.