The ongoing pandemic has provided many frustrated entrepreneurs with the time and focus to actually start their own businesses. And with many of your clients already being freelancers or self-employed, it’s important to help them understand the benefits of keeping personal and work finances separate. But not all bank accounts are the same, and we’re here to ensure you can help your clients choose the right bank account for their individual needs.
What’s the difference between a personal and Business Bank Account?
There’s nothing particularly special about a Business Current Account – at its most basic level it’s just like your client’s personal bank account, but it’s one they open solely for their business income and expenditure. But as their business grows, and their finances become potentially more complex, your client can begin to enjoy benefits such as invoicing, payroll management, as well as assistance such as accounting and tax returns.
But does your client really NEED a Business Current Account?
This is a commonly asked question amongst our early stage start-up customers here at Swoop, and we want to be as clear as possible. Your client definitely DOES need an account if they’ve set up their business as a Limited Company in the UK and registered it with Companies House. This means that their business is legally separate from them, so they shouldn’t be using a personal account for its expenses.
Other businesses, including sole traders and freelancers, don’t necessarily need a business account, however it is still advisable to save them from juggling their business’s income and expenditure with their own, especially if their self-employment income is the lion’s share of their total income.
In a nutshell, if your client is offsetting their business expenses against income, then they really ought to be looking for a separate business account.
Opening a Business Current Account – the good and the bad
Let’s start with the good. There’s the obvious stuff you already know about such as setting up and making payments, receiving funds, and making debit card transactions. But by keeping your client’s business income and expenses separate it will be a whole lot easier when it comes to doing their tax return. The information and numbers required are all in one account so there is no need to trawl through their personal expenses trying to determine what was and wasn’t a legitimate business expense.
Another consideration when looking at ‘the good’ is by opening a separate Business Bank Account, your client won’t break their personal bank’s terms and conditions. A Personal Current Account is exactly that – for personal use. And most banks don’t actually allow it to be used for business transactions.
However, the biggest benefit to having a Business Current Account is that your client will build their business credit rating. If they decide to apply for a business loan or business credit card then it makes far more sense to have built some credit history for their business. Not having a Business Account will mean they’re not eligible for many business financial products.
What are the downsides of opening a Business Bank Account?
Now you know why your client SHOULD open an account, there are a few factors worth considering. The most obvious is that many banks will charge your client fees. However, these fees come in different shapes and sizes and by carefully comparing and selecting the most appropriate account for your client’s needs, you could find they’re not paying anything at all.
Swoop keeps an updated table of the best Business Bank Accounts for start up businesses, so it’s definitely worth a visit.
The only other potential downside, which is not really much of a downside, is that your client will have two accounts to manage, so will need to be a little more organised. More cards, more passwords – but it’s well worth a little extra admin now to save them time and effort in the future as identified above.
Which is the best Business Current Account for your client?
Firstly, your client needs to decide what they want from their bank account. Do they need to make a lot of cash deposits? Do they need to make international transactions? (If yes, they should check out online foreign exchange providers before using their bank). Do they need to pay in cheques? Do they want a high street branch? Whatever their individual business needs are, it is important to compare the available Business Current Accounts and match them with these needs.
As a final observation the new online banks are working incredibly hard to keep costs down, service levels high and many provide hugely appealing perks and benefits. So, your client should think beyond the high street, they shouldn’t just bank where they’ve always banked because it feels easier – they should shop around, match their bank to their business and get the best Current Account for them!
Our team of experts at Swoop would be happy to chat through the best options for your clients so get in touch today. Click here to get registered.