10 Reasons Why You Need a Business Bank Account
One of the key things to do after having set up your business is to open a business bank account. Separating your business finances and transactions from your personal funds is essential. As a startup, it helps you keep an eye on your business expenses and income, helps build trust with your potential customers, and maintains financial stability.
Moreover having a business account comes with a lot of other benefits. This post will explain the reasons why you need a business account. You’ll also get to understand the basic requirements needed to open one, how long it takes to open a business bank account, and so on.
What is a Business Bank Account?
A business bank account is a bank account that is opened strictly for business purposes. It is used to separate business transactions from individual personal dealings.
Business bank accounts are important to businesses, although there are variations regarding whether they are a major requirement or not. As a sole trader, you are not necessarily legally required to have a business bank account although having one will help your business a lot. For a limited company or LLP, you are legally required to have a business bank account.
While some business bank accounts are for simple business transactions, others can handle payroll, tax payments, issuing invoices, and so on. Whether your business requires a detailed and complex banking transaction or a simple one, there is usually a business account that suits you properly.
10 Reasons Why You Need a Business Bank Account
Here are some of the reasons you should have a business bank account
1. Makes you more Professional
When it comes to maintaining professionalism, having a business bank account can never be underestimated. Customers are quick to believe what they see rather than what you tell them. To help your business stay more professional, it is important to have a business bank account that tallies with your name and credentials.
When dealing with people you are perceived as being more credible and real when you have a business account than when using a personal account.
A potential customer could even cancel a deal they are supposed to have with you because of your inability to present a business account. In all, you should know that a business account helps build trust, shows your business is legit and credible, and shows you’re professional in your business dealings.
2. Improve your credit ratings
With a personal account, you have your personal credit score. Also with a business account, you have credit ratings for your business. So to keep this credit score high and intact, you must open a bank account as soon as your business is formed and be dedicated to maintaining healthy financial transactions.
Having a good credit score on your business account is important. Generally, it helps your business to easily access funds in the form of loans. In fact, most lenders or creditors would most times prefer to go through your business's financial status to estimate your business's financial standing and be sure if it is worth giving loans to your business or not.
3. Improves your business's financial stability
Using a personal account for your business means all of your personal and business transactions happen in just one account. With that, it becomes very difficult to keep an eye on the expenses incurred by the business and from you as a person. Even when you are overspending from the business profits and gains, it could be difficult to take note of this.
Separating a business account from your account means that the business could provide an accurate record of the transactions it undergoes within a period. It could differentiate the total expenses made and income generated within a period.
With that you could stay clear from overspending from your business income, thus helping your business maintain financial stability through the years. Once you’ve separated your business account from your personal account, you can then decide to pay a specific amount for wage or salary. From there you can make your personal expenses.
4. Makes financial planning and forecasting easier
When you have your personal and business finances all together in one account, it becomes quite difficult to have proper financial planning and forecast for the future. In every business, having accurate planning and forecasts is important because it helps lay out how your business could improve, and which strategies have worked and which ones haven’t. When going through business planning and forecasting, getting hold of your business transactions and dealings is thus crucial. A business account could provide you with the necessary information you’ll need rather than a personal account.
5. Reduces transaction limits for businesses
For most personal accounts, there are limits to the number of transactions that could be carried out in a day. With a business account, you should not expect these limitations. Businesses carry out a lot of transactions every day, especially well-established ones. So in most cases, there are no limits to the number of cash withdrawals, or transaction limits for a debit card in a business bank account.
6. It keeps your assets away from business liability
If your business is a limited company, limited liability partnership, or a corporation, you are legally expected to enjoy the limited liability that comes with the business.
This means that if at any point your business incurs a debt, the business would be solely responsible for paying it back and not the owners of the business.
With that, it becomes essential that all the business transactions are separated from your personal account and this means a business bank account is crucial.
Failure to open a business bank account and separate your business dealings from your personal account means that your personal assets and business assets in the form of funds have been mixed up.
This consequently makes it difficult to differentiate your personal assets from your business assets. As such, your funds are not safe if the business incurs debt in the future.
7. Makes tax returns easy to prepare
Using a business bank account makes it quite easy to prepare your tax returns. With all your business income and expenses in a business bank account, it becomes easier to connect your tax return software to your business account.
So you wouldn’t need to spend a lot of time calculating which expenses come through your personal dealings and which come from the business. As such it becomes easier to make tax deductions during the tax period and be able to provide HMRC with accurate tax income.
8. Gives you access to specialized banking support and tools
Having a business bank account doesn’t only give you access to exceptional financial tools but it also provides you with more concrete banking support.
To most businesses, receiving support from banks when needed is of utmost importance. To achieve this, you must open a business bank account.
When doing that, be sure to research if the bank has 24/7 customer support, online teams that help customers, an account manager who is dedicated to your business, and so on.
The type of support that is given to business account owners varies from bank to bank. So you should be sure to find out about this before opening a bank account.
9. Opens doors for Networking and business connections
Many banks within the UK organize events to help business owners succeed more and connect with themselves. Without a business bank account, it is impossible to be part of these events because they are designed for customers with a business account.
Banks organize workshops, conferences, forums that help connect with other experts in your business field, successful business owners, and potential clients, and so on.
As a business owner or enterprise, being part of these programs is vital to your business growth as it helps you connect with valuable personnel and experts who could bring about a positive change to your business.
10. Helps you prepare in case your business scales up quickly.
As a new start-up, you may begin your banking with a personal account. But as your business grows and develops, you begin to handle more business transactions which might be difficult to manage with a personal account.
Opening a business account as soon as your business is formed means you’re prepared for future growth and the wide business transactions you may experience later.
By then you won’t necessarily need to switch to a business account as you’ve already prepared for the chance to scale up your business.
Apart from that you have the chance of enjoying other benefits that come with having a business bank account right from your business conception and your bank account grows as your business grows.
Basic Requirements to Open a Business Bank Account
Opening a business bank account in the UK is quite simple in as much as have the requirements handy. To open one, you’ll need to provide information and documents stating who owns the business, what the business does, etc. Below are the requirements you must fulfil:
- Proof of identity like a driver’s license, passport, etc.
- Contact Phone number and email address of the business.
- Business address (located within the UK).
- Personal address (located in the UK)
- Companies House registration number
- Number of business employees
- Unique Taxpayer Reference
- Estimated Annual turnover
- Evidence of registration with an industry body if applicable.
All of this information and documents most times are targeted towards showing proof of your identity, UK address, and business verification. Although these are the basic requirements for most banks, you would want to contact your chosen bank for any other specific requirement.
How Long Does it take to open a Business Bank Account?
Opening a business bank account could take a few hours, days, or weeks depending on some factors. Depending on the accuracy of the information and the documents provided, you could expect to spend less or more time. Particularly, if your business structure is simple, you could use less time than when your business structure is complex.
Apart from that, the service provider that you choose to open a business account with will also influence how long the process will take. It is therefore to make plans ahead and give enough time for the account opening. You would also want to do some research regarding the banks available and the time it takes each of them to open a business account.
In cases where you are using an online bank or where a physical bank provides you with online service, you could expect the process to be faster. In all, the length of time it’ll take to open a business account depends on your circumstances and the bank you choose.
Factors to Consider when Choosing a Business Bank Account
When it comes to opening a business bank account within the UK, Incorpuk can help you achieve that.
Here are some factors you may consider when choosing a service provider that will meet your needs.
1. Introductory offers
Many banks offer several and varying introductory offers to business account owners in the first year. Some of the offers include discount charges, charge-free periods, higher interest rates, etc. While all of these offers are great, it is important to be mindful of the other factors discussed here before opening a business bank account.
2. Online banking
As you'd expect, most physical banks also have online banking options. So this might not be an issue. However, you would want to be sure of the type of transactions you can carry out through their online banking.
3. Availability of several branches
You might sometimes or regularly need to visit your bank as a business. While some banks have a physical branch, others don't. So if you are someone who would wish to visit the bank, then be sure to check their options out.
Moreover, you'd also want to be sure that the bank has a branch closer to your business location or one you can easily have access to. Either way, you just have to ensure that you can conveniently visit a bank branch when the need arises.
4. Interest Rates
When it comes to earning interest with your business bank account, you should know that several banks offer different rates. There are also terms and conditions to earning these interests. So you need to be sure how these interest rates work for business bank accounts and the conditions for each rate before selecting a business account.
5. Customer Support
As a business owner, you would expect that you'll need more banking support than an individual with a personal account. It is therefore important that you pay attention to how these banks deal with customers, especially with business bank account owners.
Will your business only need just a little support like online banking support or will it need support in depositing cash, paying cheques, or getting specialized banking advice? All of these are what to consider when choosing a business bank account.
Need help creating your business bank account?
If yes then, Incorpuk can help you achieve this goal today. Kindly contact one of our experts here for more information.
Conclusion
Having a separate business account for your business doesn’t only have a say on your company reputation but it helps you keep a track record on your business finances and transactions. The importance of using a business account can never be underestimated. As such it is crucial to open a bank account for your business once it is formed. If you have any questions about business bank accounts or company formation in the UK, kindly reach out to one of our experts here.