What should I be looking for in a business bank account?

Getting a business bank account is a vital part of setting up your business. All incorporated businesses must have separate business accounts. Although sole-traders and some partnerships are not legally obliged to have a business bank account, many choose to open one.

Business bank accounts are a vital component of a business. All the monetary transactions, such as deposit payments, taking out petty cash, and paying suppliers and staff, will go through the business bank account. A business bank account makes it much easier to keep an eye on your cash flow and calculate tax too.

Although business bank accounts carry some similarities with personal accounts, there are some key differences, the main one being that banks will charge for their services.

That’s why it’s so important to shop around to find the best deal. You want to find the business bank account that will suit your business model to a T, and also incur the lowest amount of bank charges. Taking out an account with the first bank that springs to mind simply won’t do.

All the banks are out to lure start-up businesses into taking out an account with them. Consequently, there are quite a lot of deals out there, particularly for start-ups. The golden rule is to shop around and not to be too blinkered by all the offers. When you’re on the hunt for a business bank account, here are the questions you should be asking yourself:

Firstly, what facilities does the bank offer? There should be all the standard services that you’d expect of the bank: such as deposits, withdrawals and statements. Check out how easy it is to make deposits and withdrawals and manage your cash flow. Do they offer any free systems or resources to make it easier for you to manage your company’s finances? Make sure you know exactly what kind of bank charges you’ll be subjected to.

You should also look into how much they charge for transactions. Part of this will involve looking at your business plan or model and working out the nature and frequency of your financial transactions. For instance, will you have a high number of regular transactions, or will you only be receiving large payments on an infrequent basis? Will the majority of your transactions be online, or will you be dealing with cash and cheques too? Banks will charge for cash and cheque deposits so you’ll need to find the bank account that offers the best value for money and best caters for the type and amount of transactions you will be making and receiving.

There should be a debit card with the account and also see whether there is a credit card too. Does the credit card carry a fee every time it’s used? Or are you charged an annual fee? What are the overdraft and loan facilities for the bank account? Does the bank offer asset finance as part of the account, e.g. leasing and hire purchase which helps your company purchase tangible assets, from office equipment to large scale investments (e.g. warehouses or business assets)?

Check out their deposit accounts and merchant accounts too. You’ll need a merchant account if you plan to accept credit and debit payments from customers, and a deposit account for holding reserve funds. You might want to see whether the bank pays interest on the current account.

Next you should look at the support services the bank offers. How much financial support and advice do they offer start-up businesses? For example, you might want to choose a bank that has a dedicated small business account manager who will be able to fully understand the challenges you face and offer specialist advice.

Finally, scrutinise all of their introductory offers. Some banks boast of ‘free banking forever’, when, in reality, there are limits on the number of transactions you can make for free. Find out exactly what level of additional support and advice they are offering and whether you will really benefit from it. It’s also worth asking other people who have taken out business accounts about their own personal experiences and recommendations.

Applying for a business bank account…

The exact requirements for setting up a business bank account will vary from bank to bank, but broadly speaking you’ll need: a business name, an address, details of the nature of the business and its legal status. They might ask you for a start date, details about finances, such as anticipated turnover and funding requirements, and, if your company is a limited company.

They’ll also require personal details about the partners or directors, such as home addresses, bank account details, nationality, date of birth, and country of residence. All banks will ask for some form of photo ID, such as a passport or driving licence, and proof of current home address. Before you go to your appointment with the business manager at the bank, confirm what additional paperwork or information you’ll need to bring with you.

At the appointment, you’ll usually present your business plan to them, discuss various areas of your business and hand over the necessary paperwork. Hopefully, they’ll set you up with a business account and you’ll be ready to rumble.

Tips on how to make the most of your business bank account…

One…

Check your account regularly and scour every statement. Challenge any bank charges you don’t understand and make sure you always chase up your invoices promptly. Yes, sometimes, particularly in the beginning, looking at your bank account might be painful, but it’s so vital to keep on top of your finances.

Two…

Set up standing orders and automated bank transfers for regular payments. The less time you have to spend faffing about sorting out your payments the better.

Three…

Tweak your business operations to dodge unnecessary charges. In particular, try to limit cheque and cash transactions if possible, or alternatively, try to bank them all in a lump sum as that will end up being cheaper than frequently small transactions. Some banks have a deal where they will reduce the cost of your account if you complete the majority of transactions online, so that’s also well worth checking out.

Four…

Don’t be afraid to negotiate with your bank. Particularly if you’ve been a good customer, you can use the threat of taking your business elsewhere as a leverage point to get a better deal – exactly as you would for mobile phone service providers.

Five…

So many companies continue to use the same bank year after year when they could be getting a better deal elsewhere. You should shop around every couple of years to see if you can find a better business account than your current one. Also, as your company (hopefully) expands you might find other banks that cater better to your business needs.