One of the first things you will do when you set up a new business is to open a business bank account.
The easy thing to do is to use your personal bankers to act for your new business, but this isn’t necessarily the wisest move as there are significant differences between the services you will receive from the various high street banks.
Here’s some sound advice, together with some practical tips to help you get the most out of your bank, and choose the best business current account for your start-up, or small business.
How to choose the best business bank account
If your business is incorporated (i.e. a limited company, or LLP), you must have a separate business bank account. This is because the company, and its owners, are separate legal entities.
For sole traders and even partnerships, it is optional, although we’d strongly recommend opening a separate business account in order to keep your personal and business finances separate. In fact, we’ve created a comprehensive guide to opening a sole trader bank account.
To make the best decision, you should ideally compare several banks to see what types of deals they offer, particularly to start-ups.
Looking beyond the high street banks
Don’t necessarily go with your personal bankers to look after your business needs, as they might fall short however good they have been to you as an individual.
Many start-ups will instinctively feel more comfortable opening a new business account with an established high street banking name, however there are now several new entrants that are shaking up the small business banking market.
Many of these challenger banks are online-based and are keen to attract start-ups and business owners.
Check the charges on business current accounts
Bank charges can vary significantly between banks. Although you may receive an initial period of free banking when you open a new business current account, you should find out what tariff you will be switched on to once the free period has expired.
The effect of charges can be significant if you expect a large number of transactions to go through your account each month.
Although most business accounts currently offer virtually nothing in terms of interest, some banks have bucked the trend and you may be able to earn some interest on your current account balance.
Put your tax savings in a higher interest-bearing deposit account to make the most out of the (extremely) limited interest available to business customers. Even if earning interest is virtually impossible at the moment, we would recommend storing money owed to the taxman in a separate account.
Read our guide to keeping your bank charges low.
What banking services are available?
It goes without saying these days that you should expect your bank to offer hassle-free, online business banking as a matter of course. This is a massive time saver for small businesses, and you simply won’t be able to do without it. Being able to plug in your business account to online accounting software – so that your accounts automatically reconcile – really is a massive time saver. It also means that you are far less likely to accidentally spend money which belongs to the taxman, rather than you!
Try to find a bank that provides a dedicated small business account manager as your point of contact.
Some of the high street banks offer a dedicated service, and it will help to be able to talk to someone who understands how real businesses work when you need assistance or advice.
All businesses (and their owners) are distinct, and it may be that you really don’t need the personal touch.
Some banks offer genuinely useful ‘free’ services, including access to business software, which could save you hundreds of pounds each year.
Ask your network how they rate their bank
Ask friends and fellow small business owners in your network what kind of experience they have had with their banks. You simply can’t beat a personal recommendation from someone you trust.
If it doesn’t work out with your bank for whatever reason, you can always switch banks. Aside from a small amount of inconvenience, the switching process has been made much simpler in recent years, so you’re not tied to your current bank for life!
Last updated - 9th April, 2019