Going it alone as a sole trader has enough challenges and obstacles to overcome before you even consider all the financial aspects of running a business. However, by considering a separate bank account from the outset this will immediately position you for operating more efficiently.
Although it is not a legal necessity for a sole trader to have a separate bank account there are many benefits to ensuring that you set this up. Your bank may advise on this in some cases but even if not, setting up a business account immediately enables you to operate more professionally and keep your trading and finances apart from your personal account making them easier to manage and track.
BENEFITS OF A SOLE TRADER BANK ACCOUNT
Tax: whether you are managing this single-handedly or have an accountant to sort out your tax affairs, a sole trader bank account will make life a whole lot easier and you will be more productive. With a business account you can see all incomings and outgoings clearly which will save you or your accountant a vast amount of time and frustration that would ensue from trying to do this with a personal bank account.
Expenses: separate business finances will enable you to keep a thorough check on your expenses, and if you want to claim tax relief you will need to be able to record business expenses for HMRC when sending in your tax return. Trying to retrospectively sift through a personal account to sort out the items that relate to your business transactions can be time-consuming and may lead to omissions for items that you overlook.
Professional image: whether it is your bank, customers or other stakeholders in your business venture, there is no doubt that a separate bank account promotes a much more professional view of your company.
WHAT TO LOOK FOR IN A BUSINESS ACCOUNT
Costs: many banks have an initial offer for business bank accounts where the first 12 months are offered free of charge, so as with personal accounts shop around for the best deal. After this timescale you will normally be charged a small fee when you deposit or withdraw money, and certain accounts will charge quarterly or monthly fees.
Key features: as mentioned above use comparison websites or other tools to ensure you get the best deal and understand all the features of any account you are considering such as the transaction fees, overdraft limits and costs. By doing the internet research you will find there is a wealth of information on how to set up your account, look at reviews for banks and accounts and get the one most suited to your requirements.
Bank support services: Another aspect of your account to fully research is how a particular bank supports its business customers. Some banks will have specific business advisors who can offer a range of advice, and this may even include software that can help you keep track of finances more effectively.
WHEN SHOULD YOU OPEN A BUSINESS BANK ACCOUNT?
Although this may not be viable in the very early stages of developing a business, as it grows and becomes difficult to track expenditure then this is the time to open a business account.