How to find the right business account for SMEs

From high-street banks offering free banking to more specialised banking services tailored to your industry, there’s a dizzying choice of tempting offers. Yet, you’d be wise to look past the headline offers and enticements to find the right business bank account for you.

Choosing a suitable business bank account depends on the type of business you run. As a sole trader, you can continue to use your personal current account. However in most cases, it’s best to open a separate business bank account. That’s because for a sole trader both personal and business income is treated as one for tax purposes. A dedicated business bank account makes managing cashflow simpler and filing your annual self-assessment easier.

It’s a different story for owners of a limited company or a Limited Liability Partnership (LLP). You are legally required to open a business bank account and keep business finances separate from your own personal ones. But plumping for a business account at the high-street bank you already use for personal banking may not get you the best deal. While researching business bank accounts may seem like a waste of time, a little bit of effort now to find the right business bank account could save money in the long term.

How to find the right business bank account

Treat finding a business bank in the same way as you would any other business supplier. Research the market and shop around for the best price, service and benefits for your business.

Not all business bank accounts are a good deal. Visit Business Banking Insight – a government-backed service that surveys small businesses to foster greater competition in the business banking sector. It publishes surveys and a comparison tool to help you find the right business account for you, along with banking advice and tips.

Interview potential banks. Arrange to visit your local branch and talk to the business banking manager. Let them know you’re shopping around for the best deal and ask what incentives they can offer. Ask questions about your specific business needs, such as handling merchant point-of-sale payments or over-the-counter services such as depositing cheques.

What to look for in a business bank account

It’s worth looking past any initial free banking period when trying to find the right business account. While a year of free banking sounds a lifesaver for a small business, transaction costs soon add up over the longer term. It’s worth evaluating any business account in terms of fees, accessibility, features and perks.

Banking fees – When looking to find the right business account, it’s important to focus on transaction fees. These include a monthly charge for operating the business account itself, plus fees for different types and volumes of transactions. Most business accounts will offer online BACS banking transactions for free, but depositing cheques and cash can be expensive. Examine penalties for going over your agreed overdraft limits. Most banks will offer a range of business bank accounts tailored to different types of transaction, such as lower fees for cash, so check which is the right business bank account for you.

Accessibility – Choose a bank that has a local branch if you plan on using over-the-counter services regularly. Having to travel miles to pay in customer cheques can quickly become a chore. Check who needs to be authorised to access your account. Typically, you’ll need to open the account with the details of all business partners, and all will be issued with a debit card and cheque book. You’ll need to set up rules with the bank as to authorisation, such as two signatures being required on company cheques.

Features and perks – Interest is barely a feature on business bank accounts, so don’t make it a priority when trying to find the right business account. It’s best to move surplus money from a business current account into a business savings account. Expect interest to be no more than 0.1% in many cases. Other perks do feature. Some banks provide discounts for business tools such as accountancy packages or training, while many offer access to help and advice for small businesses.

How to switch business bank accounts

If you have a business bank account but would like to switch to another provider, the process has become more straightforward in recent years. Switching accounts used to be a protracted process that left many businesses stuck with the first bank account they signed up to, coupled with expensive charges. The Current Account Switch Service (CASS) aims to make switching easier and applies to small business bank accounts.

If your business has a turnover less than £6.5m and fewer than 50 employees, then the switch should take place within seven days. Crucially, all payments that go into your previous account will be redirected to your new account indefinitely. Any standing orders and direct debits will also be switched, and CASS includes a peace-of-mind guarantee. If something goes wrong, any interest lost or charges incurred will be fully refunded.

Ask your bank about CASS for more details on the scheme.

 

 

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.