During this month’s Facebook Live, I talked about bank accounts for business – what the legal requirements are, why you should have a separate bank account and what to look for when choosing an account.
While there is no actual regulation that says a self-employed business must have a separate bank account, it is still a good idea to have a bank account that is only used for the business. This will help you to know exactly what funds the business has and ensures you have all business transactions accounted for.
If you are a limited company, there is a legal requirement for you to open a business bank account.
Why should I have a separate bank account for my business?
There are many reasons why you should have a separate bank account for your business, but I am going to touch on just a few of them.
Reason #1 – it is easier to see how much money the business has.
If the bank account is solely for the business, you will be able to see at a glance how much money the business has. You won’t need to spend time trying to sort out what money belongs to the business and what money belongs to you personally.
Reason #2 – it cuts down the admin time needed for getting the accounts completed.
As mentioned in reason number 1, if the bank account is solely for the business, you won’t need to spend time trying to figure out which transactions belong to the business and which ones are personal. Having a dedicated bank account will make it much easier, and more efficient, for categorising the transactions and getting the accounts up to date. It will also help reduce your stress levels because you won’t have to be trying to remember whether a transaction was personal or not.
Reason #3 – it helps with reconciling the bank account.
At the end of the month, you will be able to properly reconcile the bank account and easily track customer payments you’ve received so you can make sure your debtors’ list is up to date. This means that your accounts will accurately reflect how much money the business has.
Reason #4 – it makes HMRC inspections easier.
If HMRC ever do an inspection on your business, and you are using a bank account for both personal and business use, they will go through every transaction on the bank statements and ask for proof that each transaction is for business or personal use. It can make things very complicated and time-consuming, not to mention stressful.
Reason #5 – you can connect the bank account to your account’s software (if it’s allowed).
With a lot of the accounts software that is now available, you can connect your bank account to the accounts, which will allow for the transactions to be pulled into the software, ready for categorising. This means that the transactions won’t need to be manually entered into the accounts, making completing your accounts more efficient.
What should I look for when opening a bank account for my business?
Every business is going to have different needs, so it is important that you understand what your business requires before opening a bank account. For example, if your business makes or accepts a lot of foreign payments, you will want to find a bank account that allows for this feature but doesn’t charge a lot for it.
Do you need to be able to go into a branch to deposit cash or cheques regularly? If so, you will want to look at a bank that has a physical branch and not just an online bank.
Make sure you read the terms and conditions for any bank account as some banks will not allow self-employed businesses to use a personal bank account.
Find out whether there will be regular monthly fees and whether there is a period of free banking or not.
If you are using software like QuickBooks Online, Xero, Sage, or FreeAgent – can the bank account be set up to use the bank feed? If not, can you download the bank transactions to a CSV file so they can be imported into the software?
You will want to make sure that you can get monthly statements for the account so that they can be used to reconcile the bank account within your accounts.
There are so many different types of bank accounts available now, so it is imperative that you research the different options that are available and choose the right one for your business.
If you would like to talk about having a separate bank account for your business, please feel free to e-mail me.