The secret to finding your perfect business bank
A little preparation now can stop a lot of heartache later….
You probably know that one of the first things a business should do is get a separate bank account set up. Limited Companies are legally required to have one but it makes life so much easier for all business owners if you don’t have to painfully unpick business transactions from your personal spending. Hands up who has learnt that lesson from experience…
Other benefits to having a separate bank account:
- Being able to receive payments in the name of your business
- Easier to financially manage your business including understanding your business’ cashflow and identifying issues
- Save money on accounting and bookkeeping fees (better records mean less work for us so lower costs for you)
- Last but not by no means least, you are likely to identify more of the spend you can claim as tax deductible expenses. Remember every £ counts….
Which is the right bank account for my business?
There are so many different bank accounts on offer it can make your head melt. These range from traditional high street business bank accounts through to smaller banks specialising in sectors such as charities or businesses with a social purpose. Not to mention the ‘challenger banks’ that are increasingly shaking up the boring business bank sector such as Coconut (who I am an accountant partner for).
Business bank accounts generally charge transaction and monthly service fees. Shop around as fees and services provided for them vary. See below for my top tips on how to find your perfect match.
In addition, if you are a sole trader you may be able to use an additional personal or savings account. Whilst this saves on fees you need to check whether the terms and conditions of the account allow you to use it for business purposes and whether it provides you with all the functionality you need such as an overdraft or credit card.
How do I choose from all the different accounts available?
A little upfront work can prevent you from making a costly mistake and your head exploding from all the bank chat.
Step 1: Think about how your business works or is likely to work.
The volume and type of sales and purchases transactions you have/ are planning to have will help you understand what type of transaction fees you will incur most and the likely cost. Ask yourself:
- How many customers are you likely to have?
- How will your customers pay you and how often?
- How will you pay your suppliers and staff?
- How many transactions are you likely to have paid in and out?
- What is the likely value of the different type of money received e.g. cash, cheques (remember those?) or online?
Step 2: Make a checklist of what features and services you would like from a bank. Examples include:
- Speed of set up — do you need the account really quickly or can you wait? Speed of set up seems to vary greatly amongst the banks. I have heard stories of customers being quoted 4 weeks plus!
- Free banking periods — offered by the various banks for new businesses. These range from six months upwards. Use internet comparison sites to identify current offers and fees. My favourite is Money Saving Expert.
- Technology — the quality of online and mobile banking services provided and their usability vary greatly. Check their services out beforehand either through the bank’s website, in branch or through friends who use them. The new challenger banks are generally more technology focused. That’s way I am excited to partner with Coconut as I believe their bank account will help freelancers and self employed people use their numbers to achieve their success.
- Bank feeds — as a Xero specialist I see a large variation in the quality of feeds provided by the banks to Xero. Better information makes life easier! Definitely worth speaking to your accountant about which bank they would recommend for your method of managing your business finances.
- Location — do you need a local bank to pay in cash or cheques or are you happy to work solely online? If so, location(s) and convenient opening hours will be key.
- Customer service ratings — especially for online and phone support. Do they have specific specialisms in your sector?
- Funding — what is likely to be available to you, when and at what costs?
- Ethics and ethos of the bank — areas to consider include investment policy on key areas, social and environmental impact
Step 3: Rank the features and services in order of importance to you. What are your 3 must have’s? Are any more important to you than cost of the service?
Step 4: Use all this information to help you focus when faced with the mind boggling amount of marketing information out there.
Step 5: If you are finding it difficult to choose between a few accounts or banks, speak with them in order to ask them more detailed questions and try out their customer service. This could be on the phone, in person or via online chat.
Good luck! Would love to hear all about your business banking experiences. What do you love and what do you hate?