While it may not be the factor that makes or breaks a business, taking the time to choose the right business bank account can save a lot of trouble down the line.
A business owner or manager should be spending their time on what really counts towards long term, sustainable business success – not dealing with issues or problematic limitations around bank account admin.
Switching business bank accounts can also be an administrative pain and no matter how clearly you communicate the change you can guarantee there will be clients mistakenly sending payments to the previous account for months.
It’s important to get it right from the off if possible!
Let’s take a look at the factors to consider when making the initial choice of a business bank account and some of the best offers currently available on the market in 2017.
Do I Need a Separate Business Account?
While there is no legal obligation for sole traders or limited companies to conduct their financial transactions through a dedicated business bank account, in theory a personal account can be used, it is highly advisable to do so.
Firstly, clients will often find it strange if a business partner provides personal bank account details for payment.
Many have a policy of only making payments to business bank accounts and even if they are willing to settle invoices into a personal account, this is not a particularly professional image to project.
Secondly, running business transactions through a personal bank account will make keeping accounting clean and annual tax returns in order far more complicated.
It can open the business owner up to potential allegations of fraud or embezzlement even if everything is done correctly.
In almost all circumstances, it will simply not be worth the headache to do it that way.
And finally, conducting business transactions through a personal account exposes the business owner to greater legal and financial liability.
The whole point of setting up a limited liability company is the separation of the business entity from the ownership.
Mingling finances blurs the lines and if the company happened to be sued a court could go after personal finances there is no separate business account.
Don’t Be Swayed by Introductory Offers
Many banks offer an introductory period of free banking for new business bank accounts. Other enticements such as free accountancy software subscriptions and other promos are also common.
While introductory offers are great and don’t have to be entirely discounted from the equation, a decision should also not be made on that basis.
1 or 2 years of free banking is great but only if fees and charges after that initial period expires are still competitive.
Other freebies don’t really matter and should be discounted from the decision making process unless as a symbolic tie-breaker between two identical offers.
Assess Fees Within the Context of Your Expected Business Activity
Business bank accounts tend to have more complex fee structures than personal bank accounts. Some will apply a flat monthly administration charge and some won’t.
Different kinds of transactions also usually have different charges applied, with online transactions generally cheaper.
If a business expects to receive cheque or cash payments regularly there may well be additional fees for that kind of transaction which you should be aware of when making a decision.
Read the small print and full list of charges that can be applied in different circumstances and for different transactions and way those up within the context of your business’s expectations.
Business bank accounts also tend to be tailored to businesses of a particular level of turnover.
The account and charges for a business with a five-figure, six-figure or seven-figure turnover, and often stages in between, will differ so make sure you are looking at accounts that fit your business’s size.
Online or Branch Banking?
Your preferences or needs in terms of how much of your business’s banking will be conducted online is also crucial to choosing a business bank account.
If you prefer to do things in person a bank with a conveniently located branch is crucial but if you expect this will be a rarity it won’t be so important so long as there is a branch within striking distance.
Foreign Currency Requirements
If your business has regular financial transactions with clients or suppliers abroad and you will receive or send transactions in different currencies then it will be very important to choose a business bank account that is strong in this area.
Some questions to consider:
- Can you open accounts in different currencies?
- How competitive are the exchange rates offered?
- What are the charges for sending and receiving different currencies?
Third-party currency exchange and transfer services such as Transferwise can assist in this area, and help to reduce costs.
A Handful of the Best
A very competitive business bank account offer comes from the less well-known name of Tide.
The account charges no annual fee and there are no turnover requirements for either minimum or maximum income.
Limited companies, partnerships, charities and sole traders can offer an account and the only charges are 20p per transfer and £1 for cash withdrawals from an ATM.
This account will best suit small businesses that do not have large volumes of transfers in and out every month.
HSBC offers solid business accounts for companies with turnover of up to £2,000,000 per annum.
Again, the account is open to all types of small business from sole traders to partnerships and charities.
A monthly fee of £5.50 is charged but there are no additional charges for domestic transfers or cash withdrawals.
Start-up companies are given an introductory charge-free 18 months and companies switching their business account from another bank 12 months.
Santander is another popular choice.
Conditions are similar to those of HSBC though the monthly charge is £2 more at £7.50. Start-ups get the first 12 months free.
Santander’s start-up and small business accounts also have a £2,000,000 turnover cap and companies should have no more than 2 directors/owners to qualify.
One small edge to the Santander accounts is that they offer 0.1% interest on the cash balance.
If you’ve had good experiences with your business bank account provider, let us know in the comments.