5 Things to Consider when Choosing a Small Business Bank Account
Finding the right bank account to use for your small business can feel like a minefield at times. There are certainly different ways of banking for your business and some pros and cons that will differ according to your business type and structure.
So, in this blog, I want to talk through some of the considerations you should think about when deciding on a business bank account for you.
Do I need a business bank account for my small business?
Officially, no. You don’t actually need a specific business bank account for your small business however for convenience’s sake it’s often easier to have one – think about doing your tax return at the end of the year and having to go through each transaction and marking which ones are personal and which are business, it can take hours to sort through!
So, having a separate bank account is a good idea but it can be a regular current account, so long as you can send and receive money it’ll work (just check it’s not against the T&C’s of your bank).
However, some business owners might opt for a specific business bank account because:
- It might be seen as good evidence when applying for a loan or grant (especially if from the same bank)
- It can help with a Universal Credit claim to demonstrate that you are self-employed
- You’re less likely to spend the money than if it were in a personal account
- Business accounts often come with free accounting software and business advice
One caveat, if you are a limited business or thinking about going limited in the future, then you are legally required to have a separate business account because a limited company is a separate legal entity from its owners.
Do I need to pay for a business bank account or is free good enough?
In a nutshell, no. You don’t have to pay for a business bank account. Yet, many high street providers do charge for their business bank accounts, this is often in the form of a fixed monthly fee or on a per-transaction basis.
The benefits of having a business bank account with a fixed monthly fee is that it often comes bundled with free accounting software like FreeAgent, Xero or Quickbooks; access to networking events and accelerator programmes and a dedicated business support manager to help you.
These can be worthwhile having in place, especially in the early years of a business and you’ll often find new customer offers such as 18 months of free business banking so it’s often worthwhile to take advantage of that and then re-evaluate options at the end of that period.
I find the transaction fee-based business accounts can work out well if you tend to have minimal expenses and just receive a handful of payments per month, if you tend to work on larger projects, for example. However, if there are a lot of payments going in and out of your bank account then this might be a very expensive option!
There are free business bank accounts, such as Wise and Starling. These accounts are online-only (you still get debit cards, etc to use) and you’ll just pay for some transactions such as currency conversion, sending money abroad, etc.
Do I need to be able to visit my bank in person?
Online-only banks are proving to be very popular among small business owners so it’s worth asking yourself if you prefer to go into a branch and conduct your banking in person, or if an online option would work better for you.
If you take cash payments then traditional banking is going to be the only option for you at the moment but as many business owners have made the switch away from accepting cash due to the pandemic, having a look at online business bank accounts could be worthwhile.
Are online-only bank accounts safe?
Yes! Online only business bank accounts operate under the same financial code of conduct and standards as regular high-street banks.
Actually, many of the online banks were using two-factor encryption and biometrics to access the accounts online before the regular banks started rolling out these features in the past year or so, so you could argue that online banks are more secure.
Will I need to be able to accept payment in foreign currencies?
If you’re a service-based business and you invoice customers in multiple currencies then you should look for a bank account that will allow you to receive these currencies, or not charge you a high premium to convert into your own currency.
Wise (formerly Transferwise) and Revolut are popular online business bank accounts for this as it allows you to set up sub-bank accounts within your main bank account. So, for example, if you want to bill a client in Australia in dollars, you can create an Australian currency account in your Wise account, send these Australian banking details in the invoice and you’ll receive the dollars to this account. Then you can convert to your currency at a low cost when needed.
I hope this blog has been helpful and given you some food for thought when it comes to choosing a bank account for your business. In my opinion, it’s a good idea to spend a few hours doing some research online to look for the benefits and features of a bank account that will suit you and your business best rather than going for the popular or familiar option.