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You’ve completed your business plan and drawn up your cash-flow forecast. Now your new business needs a bank account. Choosing your friendly local high street bank just because you’ve had your personal account with them for 10 years, does not mean you will get the best deal. In business, not all banks use the same calculator. So it’s better to look round for an account best suited to your business requirements.
Why do You Need a Business Account
First, if you intend to go into business as a sole trader, even if you employ one or two full or part-time staff, a business account is not a legal necessity. Nonetheless, mixing business dealings with your day-to-day domestic financial requirements is not to be recommended. Give yourself the best chance of success, and keep the two separate.
Most businesses require at least a debit card and current business account to get things up and running. However, if you also need finance for your start-up, that raises a set of different requirements, and needs to be approached differently. For instance, is using your home as collateral the best option? (Bearing in mind you could lose your house if you default on your payments).
Don’t be Blinded by the ‘Freebies’
Even if they don’t say so, the banks want your business. Don’t be blinded by the ‘freebies’ such as 12 or 24 months free banking for start-ups, or the various insurance deals. Many banks these days will offer free banking over a fixed period. What you want to know is what you will be charged once the honeymoon period is over. And that will be hidden away in the small print unless you ask. Likewise, bear in mind any business insurance offers, but the chances are they will be cheaper from a dedicated insurance supplier.
Transaction or Standing Charges
Do you need an account where you are charged per transaction, or where you pay a monthly, quarterly, or six-monthly fee? This needs careful consideration. Some banks offer a single monthly fee for business banking, others charge per transaction. This means you will be charged every time you pay in, make a withdrawal, use your debit/credit card and every time you accept a card payment. Other banks will charge both. Your type of business will have a bearing on what you need. Are you starting a small bricks and mortar retail business dealing in cash? Or is your new venture e-commerce, where all your transactions will be card based? Choosing the wrong payment type could have a big adverse effect on your bottom line, especially as your business grows.
Foreign Currency Transactions
If you’re operating your business online, then there is always the chance you may receive orders or electronic payment from other EU countries or farther afield. Indeed, perhaps your business is aimed at foreign consumers or businesses. Ask the bank what their foreign transaction charges are. Invariably they are considerably higher than standard card transactions. You also need to enquire what their exchange rate is (euros to sterling for instance), above normal base rate.
Like so many other bricks and mortar British businesses, the UK’s big four banks are facing stiff competition from online banks. Without the overheads of property rents, maintenance and staff salaries, online banks can often provide more cost-effective banking facilities than their high street rivals, and are well worth considering when looking to open your first business account.