So, you’ve set up your shiny new company and you start trading in an excited flurry. Your new business seems perfect and you’re smiling like a Cheshire cat. But then you realise that keeping track of your sales and expenses is getting really hard, snuggled in between the Pizza Hut payments, gym membership direct debits and Tesco receipts and the million other things that you need to buy that populate your bank statement.
Having a dedicated business bank account that’s fit for business will resolve this issue. A business bank account is a bank account opened in the name of a business and is suitable for limited companies, partnerships, sole traders, freelancers and gig workers. A business bank account is used solely for business transactions, and it is separate from your personal account. Having a business bank account isn’t really optional for a limited company – you have to have one in the company name – but let us give you ten reasons why you need a business b.ank account.
Ten reasons why you need a business bank account
1. It enhances the credibility of your business
Having a dedicated business bank account supports your branding and your business name. It promotes your legitimacy and makes your business look more established.
2. Loan and credit applications could require one
You may find it very difficult to secure funds that you need without a separate business account.
3. Certain banks require a trading business to have the right account
Many banks have rules against using personal bank accounts for business purposes.
4. It makes it easier to stay on top of your bookkeeping
Having your personal expenditure separate from your business income and expenditures makes life so much easier. It saves you time and effort when preparing your accounts and tax return. Using an accounting software package such as Xero makes this job a doddle by linking your business bank account to your Xero account. By reconciling all your transactions you can ensure that your records are complete, and there is no need to keep mountains of paperwork either.
5. Ring fencing your personal finances
Having a business bank account can help you to plan your business’ cashflow and protect your personal financial position.
6. It simplifies tax returns
Having a business bank account together with a Xero subscription will offer you the easiest route to preparing your own accounts and tax return. And it will make your accountant (if you have one) love you that little bit more.
7. Makes it easier to get someone else to help you with business admin
You don’t want your assistant or your accountant poking through your personal spend, nobody needs to know how often you indulge in an online shopping fest!
8. Safeguards your business credit rating
Did you know that all UK businesses have a credit rating? A business bank account helps to protect your business credit rating even if your personal finances and credit score take a dip.
9. It offers transaction limits tailored for businesses
A business bank account will usually offer higher withdrawal and transaction limits than personal accounts, which is always a bonus when running a business.
10. You get a clearer view of your business performance
No more trawling through your personal expenses to find how much money you made last month.
How do I open one?
Choosing a bank has its own challenges – depending on your own values you may be interested in checking out banks ethics and green credentials. Once you’ve decided where to start you’ll need to pull together some basic documentation. At a minimum you will need to show proof of identity and provide the trading name and UK address of your business. If you have a limited company you will likely need to provide your certificate of incorporation. Some banks may require proof of trading such as turnover or your trading history.
We really do recommend that you open a dedicated business bank account for your new business. Hopefully our ten reasons to open a business bank account will be enough to get you to check out new business banking deals. It will help to keep that new business glow and big Cheshire cat grin on your face for a long time!