Should I Open A Business Bank Account?
When you are first starting your business it may seem an
unnecessary hindrance to worry about how to manage your business
transactions if you are starting off small. After all, it's
sales that matter, right?
However, it will be much simpler in the long run if you separate
your personal finances from those of your business.
When you look back over time and need to analyse income and
expenditure, it is much easier knowing that you only have to
anaylse the transactions in one separate bank account. It
certainly makes it less of a chore.
If you don't separate business and personal items then you give
yourself an extra job in that you have to identify and analyse
each item into business or personal before you can assess your
business cash flow. In short you give yourself an extra job.
Another benefit to separating business transactions comes if you
decide to give the bookkeeping to someone else at a later date.
That person would have a much harder time recognising which
items were relevant business transactions because they are not
as familiar with your transactions as you would be.
This would mean they would spend more time investigating
transactions instead of carrying out the analysis. This of
course would mean higher charges, not to mention a lot more
questions to you regarding explanations of uncertain items.
Finally, you should be aware that the tax man takes a dim view
when you mix business and personal items. After all, is it a
business venture or merely a hobby that you are running?
You risk higher tax assessments if it is not clear what items
are legitimate business expenses. It is silly to invite trouble
when you can easily prove that you are in control of your
business and have the relevant facts to hand. Separate bank
accounts and records will achieve this for you.
Business bank account charges can be an issue, but currently in
the UK there are a number of banks, particularly those operating
online accounts, that will let you bank for free.
There are usually conditions however, namely encouraging you to
get as many of your transactions made by direct transfer (BACS,
D/D etc.) as possible. It is really just a matter of shopping
around for the best deal.
Please don't feel that you have to use the same bank as the one
that runs your personal account. It is worth investigating if
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they will let you have a special deal but don't feel beholden to
take it. Competition is rife in the banking industry and with a
little persistence you should be able to secure a favourable
deal.
A final word, if you do opt to open a separate bank account,
then please make sure you put all business items through it. It
is easy to pay for an item out of your personal account and then
forget to allocate it to business expenditure.
Don't forget that the item will more than likely be tax
deductible and you want to make sure it is included in the
accounts for your business.
About the author:
Trevor Sadowski has worked in Accountancy for the past 23 years
and has been a member of the Chartered Association of Certified
Accountants (ACCA) since 1994.
Trevor currently provides contract accountancy support through
short-term placements or interim management in the UK. Visit his
web site to find out more about the different accountancy services
he provides.
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