The scene is set.
You have decided to start your own business and you are in the process of choosing all the things that go with that, and that includes choosing a business bank account.
The first thing to point out is that, if you choose to conduct business as a sole trader in the UK rather than a limited company, you are legally covered to use your personal bank account. However, it might be easier if a second personal bank account is set up and used, keeping your business dealings separate.
Where do you start?
First thing’s first
Everyone is different: with different needs and expectations
Whilst recommendations are good and should be considered, it is important to remember that it is a very personal thing and what works for you might not with for someone else.
It will serve you well to do your homework, to prioritise what you require, the features you need at a minimum and what compromises you are willing to make.
Weighing up the main pros and cons of each will provide you with a little more clarity in what can appear a minefield.
1. Should I choose a high street bank or an online account?
If you are the person who prefers face to face dealings, a high street bank option is the only one for you. Pick one that is easily accessible to where you live or travel to regularly to avoid the hassle of actually getting to it.
For online banking, it is worth researching what services online banks offer so that you can weigh up the pros and cons of each.
Many online banks provide the opportunity to pay in cheques online using a smartphone camera. If tech is not your thing, it may be that a bank that accepts cheques to be paid in via the post office might work too.
2. What advantages does a bank account that charges fees offer?
If you are prepared to pay a fee to keep your money with any bank, review the charges that will be incurred and compare them with others.
If you are going to be charged when transacting, it is worth understanding what type of transactions will incur a fee and whether or not this will be a financial burden.
For example, there may be no need to discount a business bank account from your list of contenders if they charge for international transfers and you are certain you won’t be transacting globally.
3. What is the interest rate?
Although money in the bank earns very little interest these days, it is worth considering what the outlook might be in the future.
There is, of course, the opportunity to change banks when rates increase, however, the hassle of moving business bank accounts (and notifying everybody in the hope they don’t ignore the reminders to change your bank account details on their ‘pay run system’) is something that most people wish to avoid if at all possible.
4. Is there a credit facility available for a loan or overdraft and what charges would be incurred?
It is important to understand your business model and vision in the short, medium and longer term.
If you know you will require a loan or overdraft at some point, it is best to build a relationship (and credit) with a chosen bank so considering the credit facility and the various charges is an important factor to take on board.
Once again, if you believe this will not apply to you, it is something that you can take a view on, knowing the charges are irrelevant in your circumstances.
5. Does the account have a link to a particular accounting software?
There are a number of accounting software packages such as Xero, QuickBooks and FreshBooks that allow for business bank accounts to link directly, cutting out much time reconciling and recording accounts.
If you know that there is a particular accounting software package that you (or your accountant) will use, it is worth putting this higher up on your list of criteria that will help you decide on the bank you choose.
6. Can the account be linked for tax purposes?
Following on from the previous point, a number of business bank accounts, when linked to recognised accounting software packages, can be linked for tax purposes and those recognised and endorsed by HMRC allow for an easier end of accounting year for many.
The monthly subscriptions differ and the usability of it is determined by each interface and often comes down to personal preference.
If you have an accountant on board (another possible way of helping you choose which account will be best suited to you), they should be able to advise further on this and the way in which they work so you can work alongside them, fitting in with their procedures and systems.
7. Does the bank chosen provide FSCS Protection?
Any person that has heard of Northern Rock will know that it is all too easy to believe your money is safe until it isn’t.
Choosing a bank account that offers FCSC Protection is a ‘must’.
8. How easy is it to bank with my chosen business bank?
Certainly a personal choice, this comes down to what you want from your business bank account, what you will use within it and how often you will need to access it will depend on each individual.
Whilst being able to use digital banking will be of paramount importance to one person, telephone banking might be the preferred option for another.
In person, face to face banking could be a thing of the past for most but if it isn’t, a careful selection of a well-known and dominant high street bank would be the best option.
Fees, charges, credit, the list is endless.
You may receive recommendations from many people about the banks they use but it is really down to personal choice and how you are going to use your business bank account that will establish which one is right for you.