When you start a business, one of the first things you need to do is open a business bank account. A business bank account makes it far easier to separate your personal finances from your business finances. That’s especially important for self-employed workers and sole traders, but any sort of company can benefit from learning how to open a business bank account.
However, it’s important to remember that choosing the right small business bank account can be a complex issue. There are lots of moving parts, and you need to make sure you choose an account that matches up with the needs of your company. We’ve put together a rundown of some of the most common mistakes that small business owners make when setting up a business bank account.
1. Failing to have a designated account for business at all
The first mistake is the most obvious: failing to get a small business bank account when it’s required. So, do you need a business bank account? Here’s a simple way to find out:
You need a business bank account if your business has been set up as a limited company.
You don’t need a business bank account if you’re a sole trader, freelancer, contractor, or gig worker.
But here’s the thing – just because you don’t need a small business bank account, doesn’t mean that your business wouldn’t benefit immensely from you having one. How? Well, there are numerous benefits associated with separating your business and personal accounts, but for sole traders, it can have a direct impact on your bottom line.
Put simply, sole traders can claim running costs as business expenses, meaning that you’ll pay less tax and get to keep more money. It can be difficult to keep track of expenses, particularly if they’re all being billed to your personal account. By deciding to open a business bank account, you can make the process of claiming business expenses with the HMRC significantly easier.
2. Gathering the incorrect documents/information
If you’ve decided to take the leap and open a business bank account, it’s important to bring the right documents with you. Otherwise, you could end up facing a trip back to the office to find that missing paperwork. So, when you head into the bank, be sure to bring the following documents with you:
Full business address
Proof of ID for named company directors (national ID card, driving license, passport)
Proof of address (i.e. council tax statement, utility bill, recent bank statement)
Estimated annual turnover
Company House registration number (only for limited companies and partnerships)
Depending on where you decide to open a business bank account, you may also be required to provide proof that you have a clean banking and credit history.
3. Not shopping around to find the best deal
There are a broad range of small business bank accounts to choose from, so it makes sense to shop around and find the best deal. Simply opting to open a business bank account at the same bank you use for personal banking is easy, but it’s not likely to provide you with the best deal. Look for a small business bank account that comes with perks, including a personal adviser, low charges, telephone banking, overdraft facility, fee-free introductory period, and foreign transactions.
4. Forgetting about costly account fees
When you’re learning how to open a business bank account in the UK, it’s easy to forget about all the different standing charges and account fees that you may need to deal with. Many banks charge a monthly or annual fee, while you may also need to pay for online banking access and transaction fees. By looking at what your bank charges for and what it doesn’t, you can pick the best small business bank account for your company’s needs.
5. Not planning for overseas transactions
If you’re based in the UK but do business in Europe, setting up a European business bank account can help ensure you’re able to complete transactions within your target country. For more information, check out our guide to opening a business bank account in Europe. Likewise, expansions to the U.S. and Canada may also require you to set up a business bank account in those respective countries.
As you can see, a little research goes a long way when it comes to setting up a business bank account. By choosing a small business bank account that’s perfectly matched to your company’s needs, you can save money and ensure that your business is primed for success.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.