Site icon O'Brien Media Website Design

Why you need a separate business account as a sole trader or startup

Stressed young woman checking bills, taxes, bank account balance and calculating expenses in the living room at home

Stressed young woman checking bills, taxes, bank account balance and calculating expenses in the living room at home

For many new entrepreneurs, keeping things as simple as possible in the early days is key. Which is why using the same bank account for personal and business purposes is so common.

While this reduces some friction in the early days, the time will come where you’ll need to separate them – especially as you acquire your first customers.

In this article, we’ll explore why having a separate business account is important for making your business run like a well-oiled machine.

Make bookkeeping easier to manage from day one

Using a single account for personal and business transactions can reduce the barrier to entry for many new entrepreneurs. But this often results in long-term headaches, making bookkeeping and tax returns difficult to manage.

If you’re serious about your new business, it’s wise to get a separate bank account as soon as possible (as well as a professionally designed website) to “future proof” your new venture. Many first time entrepreneurs often secure their first sale or two before doing this, but at some point, it’s necessary for catering to growing demand.

On top of this, when you hire an accountant or bookkeeper, it will make their job much easier. They won’t have to organise and separate dozens (or even hundreds) of transactions from two accounts, which also means less workload for you. And with the right features (such as Tide’s expense management), these operational tasks are even easier.

Why should you work with an accountant as soon as possible? There are many benefits, including:

  1. Ensuring your books are well-organised, making it easier to secure a line of credit
  2. Accurately track cash flow and forecasting
  3. Gain more time to spend on building and growing your business

Having a business account to record all transactions from day one will make your life easier in the long-term. It will also make your accountant’s job much easier, allowing them to provide you with more strategic advice.

Some banks also require you to have one

It’s true that an organised bookkeeping system will make gaining credit easier. But you’ll fall at the first hurdle without a dedicated business account in the first place. Why? Because many banks require you to have one before being eligible to apply for a loan or credit card.

Furthermore, as a sole trader, you may not need credit in the early days. But if you want to register as a limited company, you’ll need a separate account to register with companies house.

On top of all this, you may struggle to get a merchant account without one – something you’ll need if you’re looking to accept credit card transactions from customers.

What to look for in a business current account

There are a few key things to bear in mind when evaluating business current account providers. For example, some banks will charge you a monthly fee on top of transaction fees. To keep costs down, make sure you pay attention to different pricing models.

Here’s a list of things to evaluate when opening a new business current account:

  1. How easy is the process? Opening an account should be quick and straightforward. How are eligibility and identity checks conducted?
  2. Is an interview or additional paperwork required? Some providers, such as Tide now allow you to register online (or from a dedicated app).
  3. Be sceptical of limited offers. For example, some providers may offer zero fees on transactions for a limited time only.

In short: find a provider that makes opening an account simple and quick, with a straightforward pricing model that’s easy to understand.

A checklist for when you need a business current account

If you’re still on the fence, here’s a checklist you can follow to help you make a more objective decision:

  1. Transaction quantity: If your business is growing and you’re seeing an increase in transactions, it’s wise to open a business account to future-proof your accounting operation. Learn more about building your accounting processes here.
  2. Accepting credit cards: Remember, you’ll need a business current account to get started with a merchant provider to accept credit cards.
  3. Complexity: Quantity of transactions is one thing. If it’s becoming difficult to distinguish personal from business transactions, now’s the time to make life easier. Especially when it comes time to complete your tax return.
  4. Opening a limited company: Limited companies are required to have a business account by law.

You’re an entrepreneur on a journey to build something amazing. Set the right foundations by getting your business banking in order from the very beginning. 

Ready to get started? In partnership with O’Brien Media Tide offer you 1 year of free transfers. Open a business current account with Tide today

Exit mobile version