How to Choose a Business Bank Account

Monday October 12, 2015

Deciding on the right business bank account for you isn't as simple as it sounds, and the path of least resistance may not always be the wisest.

You've already had to make some tough decisions setting up your business. You've opted for laser Gatlings on your fortress battlements instead of the standard lava cannons, and you've beefed up the quarantine protocols in your cloning lab in preparation for that shipment of alien DNA that's coming in next week. You've learned it's the little details that matter most, so don't jump for the easy solution when it comes to picking the best business bank account.

Small business owners often wonder if they even need a dedicated business bank account. Sole Traders aren't legally required to have one but Limited Companies are distinct legal entities and their finances must be kept separate. Any new business needs to keep its financial records transparent, professional and easily maintained, so a dedicated business account will save a lot of headaches. As with personal accounts, some will suit you better than others, yet many people end up sticking with the same bank that provides their personal banking - and that so-called convenience could have hidden costs.

Business Bank Account Basics

Remember that your bank is there to serve you. Don't be afraid to shop around regularly to see what's on offer as your needs change. The best small business bank account for you last year may be too limited for you today, so keep your eyes open. It may seem like a hassle, it's a lot better than struggling along with an account that no longer fits your business. The wrong account could be affecting your livelihood or employees, and you can usually change it pretty simply unless you've got loans or other obligations that prevent switching.

The basic things to look for are:

• A current account for your day-to-day payments and receipts.
• An interest-bearing deposit account for any cash not needed for day-to-day operations.
• A business debit and/or credit card.
• A loan account for major business purchases.
• Any agreed overdraft limit and its terms.
• Any dedicated small business services or specialists offered.
• The interest rates paid and charged. Low fees won't help if there are huge interest payments stacking up
• Any additional account administration charges.
• Any minimum balance requirements, and how realistic they are.

How Can I Decide Which Business Bank Account Is Best For Me?

As with personal banking, there are often incentives to keep existing customers or attract new ones, so always ask what’s available. For instance, most banks offer an initial period of free banking (typically a year or two). Many may try to dazzle you with “free advice” or videos and software to get you to sign up. Personalised one-to-one help is always valuable, but if all they're offering is general-purpose “business advice” then you can probably get better information elsewhere. Bigger things to consider are the fees the bank will charge once that free banking period is over. For example, some banks charge a flat monthly account fee for anything you want to do, while others charge for individual transactions like paying cheques in.

When you start comparing business bank accounts, think about how you’ll be using them. Will you be the only person who runs the account or will additional users be making transactions? As a general rule, the more you can do online without going into a branch, the fewer charges you'll pay.

Once you've looked at the basics, it's time to refine your selection:

• Work out what kind of service will best support your cash flow. Would you be better off with a flat fee you can rely on each month, or would you rather “pay as you go” by transaction?
• Understand how payments will be coming in. Will it be mostly online by debit and credit card or direct debits? Will your customers be paying in cash or by cheque? The answers may make a big difference to the fees and processes involved.
• Is it important to you conduct your business banking in person at a branch, or are you happier online? If you want to go into a branch then check opening hours and location to make sure you can get there easily.
• Make sure you like the approach of the account managers, and trust them with your business. Is it important to you have a named single contact as your account manager or are you happy to work with a team? Ask to meet the account managers first. Don’t be shy; they want your business!
• Find out how long it will take to open your bank account. It could be hours or even weeks, which will matter if you're changing accounts or your business is already trading. If you're setting up a new business you'll need to factor these timescales into your planning. Make sure you know what paperwork you need and have it ready.
• Get online or network with other small businesses at events and find out what customers are saying about the banks. If a bank is generating more than its fair share of complaints about its service, it might be wise to avoid it. Equally, find out if the complaints are valid for your business. If a bank's big on fees for overseas payments and those don't affect you, it might not be an problem as long as they score well for what you do need.
• If you trade with overseas companies, make sure the bank has a strong understanding of the requirements and can support you.
• Avoid banks that don’t offer ease of finance. Find out how much they loaned to businesses over the past few years.
• Check out their lending criteria. If you expect to need finance in the next few years, then you need to know what hoops you'll be jumping through. It'll also help you to understand the record keeping you'll need to prepare your application.

Even if you like the first bank you find, still make appointments to see others for an informed comparison. Understanding what you don’t want is as important as understanding what you do - and it'll make all the difference when it comes to upgrading those burned-out laser Gatlings in a few years. Keep your wits about you, and listen out for more Voices From the RIFT...