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Should I Open A Business Account?

Good to do business

If you are self employed you will either be a sole trader, (somebody who works on their own), or you will be running a small company. If you are the latter the likelihood is you will be a limited company and will probably have a business account for all your transactions. But as a sole trader, should you open a business account?

Keep it Personal

Most banks will allow you to conduct a business through a personal account. Some, like NatWest used to insist that you took out a business account if they saw the direct debits for National Insurance going through your account, but this practice seems to have stopped in recent years.

The Abbey National, which many think of as a building society but which is actually a bank, also tolerates sole traders using its personal cheque accounts “although your not supposed to”, as a nice Abbey National lady was once heard saying.

Benefit

The benefit of keeping your finances going through a personal account is mainly that you are not subjected to the horrendous charges made to businesses. This has been the main reason very small businesses have always tried to avoid using business accounts, but now, due to a new Government initiative they may no longer have to.

Time to stop

Between them, the banks make approximately £750 million a year in profit. That’s a lot of profit in anybody’s estimation and the Government has now stepped in, unusually on the side of small business, to state that the top four banks, that is HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB must now provide business accounts that either offer no transaction charges or provide credit at 2.5% below the bank base rate.

Quite how the banks will react to this is anybody’s guess, they may decide to raise interest rates levied against businesses for loans; we shall have to wait and see.

Charge and charge again

If you are considering opening a business account then it’s probably worth looking to see what the charges will amount to over a period of time and compare them with the interest rate you may be charged on a loan if you will need one or the interest rate you will be awarded if you keep your account in credit.

Basically you will be charged for simply having your account open, that will be as little and five or six pounds a month, and then every time you want to pay in a cheque you will be charged a small fee of around 70 pence and every time you make any transfer in or out of that account you will also be charged.

These charges can very quickly mount up to a considerable sum over several months. You will have to work out whether these charges are worth the benefits of having a business account.

If you are a sole trader and get paid by cheque for small projects, or for selling low cost items, you will probably want to avoid a business account. If, however, you have large cheques coming through and only a few of them each month, and perhaps you do a lot of business to business sales, then maybe a business account is right for you.

What name was it?

A business account is a very useful thing if you are trading under a different name to your own. For example, if you are Robert Palmer the Plumber, you might want to trade as “Palmer Plumbing” so your business account would be in the name of “Robert Palmer t/a Palmer Plumbing”. The t/a just stands for “trading as”. When your customers come to pay you they can either do so as “Palmer Plumbing” or as “Robert Palmer”.

Your company name will make you appear more professional for your customers, and a business account will mean that if they write cheques to either Robert Palmer or Palmer Plumbing the bank will pass them for payment without the need to fuss over having to prove you are who you say you are, or worse - having to get the cheque re-issued!

All in a name

There are some sole traders that don’t need a business account at all, they trade under their own name and have regular contracts that keep up fairly consistent payments into an account. So in cases like that it does seem a bit pointless, as long as you can keep all your business expenses separate from your personal items and make it easy for your accountant to do your “books” at year end.

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Posted on: [ November 03, 2017 ]       Add to Del.icio.us   Digg it   Add to Blinklist   Add to FUrl   StumbleUpon