Business bank accounts
Do I need a business bank account?
You should have a business bank account if you are a partnership or limited company, but there are no legal requirements for you to have a business bank account if you are a sole trader.
Many private practitioners will (at first, at least) use their personal bank account, even if they are trading under a business name. It saves the hassle, and the cost, of setting up and running a separate business account.
However, there are a number of reasons why it makes good sense to set up a business bank account:
- It will keep your business finances completely separate from your personal finances. Your accounts will be easier to manage and you’ll get a much clearer picture of the health of your private practice.
- Preparing your tax return is MUCH easier when you have a business bank account. You’ll have a clearer record of all income and business expenses.
- A business bank account is good business practice, as it looks more professional and gives you more credibility.
- You can usually get a business overdraft, which can help when you are just starting out, buying equipment or if you have any problems with cash flow (note: banks will require personal guarantees in respect of any overdrafts of loans.)
Business banking fees
This is where many people get put off. Some accounts are fixed fee accounts, while others charge a small fee for every transaction (such as making a withdrawal). So, the more transactions you make, the higher the charges. They are usually taken monthly or quarterly.
However, business banking is a competitive market and there are plenty of special offers such as free banking for a period of time. Once you work out how many transactions you’re likely to make, and what the overall fees will be, you may be pleasantly surprised. Also, if you use electronic transactions as much as possible, you can avoid many charges.
Okay, you’ve convinced me. Now what?
If you’ve decided open a business bank account, here’s what you should do next...
- Your first step should be to think about the sorts of transactions that you will be making. Will you be paying in a lot of cash, or cheques? Will you be making a lot of cash withdrawals, or will most payments be electronic? Give some thought also to the types of cards you may need and how you will use them, such as credit, debit, and so on. A good awareness of your most likely transactions will help when looking at fees.
- Arrange a meeting with the business account team at the same bank as your personal account. We would never recommend that you should automatically open an account with them, as fees and benefits vary significantly from bank to bank. However, you’ll get a good idea of what they can offer, and can then use this as a benchmark when looking at other banks.
- Have a look at other banks’ websites for business banking information, or visit the Money Supermarket website for an account comparison guide.
- Once you have opened a business bank account, compare it with others at least once a year. If other banks are offering better deals, speak to your bank to find out if they can improve your terms. This will save you the trouble of switching.
- Encourage your therapy clients to pay online where possible as it usually incurs no fee. Make sure you provide clear referencing instructions so that you can identify a payment easily.
- Once a month, reconcile your bank account with your business financial accounts.