Small Business: Key tips to opening and managing a business bank account
Christoph Tutsch, founder and CEO of ONPEX, discusses best practice for finding, opening, and running a business bank account.
You have successfully registered your business and are ready to go. But there is at least one further step you have to take: find a bank and open a commercial bank account. Here is more information on how to find the bank that suits your company best and how to open and manage your business account.
Step one in finding your bank is to know your business needs. What does your enterprise need in terms of banking and payments and what will it possibly need in the future?
Here’s a questionnaire for all up-and-coming entrepreneurs:
– What do you need your bank account for specifically? Which tasks do you aim to fulfil with it?
– Which functions are required to solve these tasks?
– Does your business involve cross-border transactions? Which currencies are involved? Would you mind having a separate account for each currency?
– Do you have an online shop and do you want the option to connect the banking service to your shop system?
– What kind of payment methods do you want to offer your customers? Credit card, Direct debit, PayPal, wallets, or others?
– Do you want to manage your account anywhere and anytime? Maybe an online solution is the right one for you? Or you prefer personal contact and face-to-face meetings?
– What are your cash requirements? Do you need an ATM near your location?
– What further support do you need from your bank? Maybe a small business loan, investment, or other special services?
Find your bank
The internet is full of different, and sometimes confusing, offers from a variety of banks. But once you know what you need, it will get easier to get a good overview. Get familiar with the banks, their services, and terminology. Check and compare their terms, fees, and charges. Be aware of hidden charges such as foreign exchange or money transfer fees!
In case you need a loan: compare interest, duration, grace period, and other factors. Check what the bank will charge when it comes to cash withdrawals, bank transfers and cross-border payments, use of your overdraft, receiving card payments, and credit card use. Also confirm what kind of businesses the bank accepts, as some only accept large companies.
You can choose between various types of banks: small banks, high street banks, online-only banks, investment banks or banking and payment service providers. Which is the one for you?
You might want to consider accounts at two different banks to manage different parts of your business – perhaps one for outward-facing business and one for internal costs such as salaries, to spread your risk. You might even get better deals if the banks know of each other. After all, you are a paying customer and they are making money through you and don’t want to lose you as a customer. You will also find accounts that are specially designed for new businesses. They are free of charge in the beginning but will change to a monthly or yearly fee after a certain period of time.
Pick a few of the banks you think might be able to offer you exactly what you want and get in touch. In a personal appointment, the bank advisor can answer all your questions.
Be aware that, compared to a private account, banks frequently offer different services for business accounts and also apply different charges (eg application fees, annual fees). However, we strongly recommend to not mix up your business bank affairs with your private bank account. This will make it hard to keep track of your money, especially when your business is growing and there will be more bank transactions.
Once you found your bank, opening an account should be easy. Just bring the required documentation to your appointment with the bank advisor. If in doubt, which documents you will need, ask the agent what exactly you have to bring.
Here is an overview of the information a bank might ask for:
– Identification for all named company directors – passport, photo driving license or national ID card
– Proof of address – recent bank statement, or utility bill, or council tax statement”
– Company details (eg business address, contact details, name, company type, Companies House registration number (for limited companies and partnerships))
– Estimated annual turnover
Accounts for non-UK residents
If you are not living in the United Kingdom, opening a bank account in the UK can be difficult. Be aware that it is not compulsory to have a UK bank account to do business in the UK, though it could make some transactions easier.
As each bank handles this case differently, we recommend checking online first and approach your preferred bank directly to ask their advice.
First of all, consider getting an accountant, especially when you are not experienced in this area. This can really pay off in the long run. Of course, you can do the accounting yourself as well. It all depends on what you can afford and what makes the most sense for you and your business. Another option would be to do your own accounting during the year and only hire an accountant to do your annual financial statement and tax form. When you tackle the books yourself, think of investing in a professional software that reduces your workload.
The law requires that every single transaction is traceable and transparent. This means that you have to be able to keep track of your bank transactions at all times and archive all your records for the required amount of time (make sure to know the local law on how long you have to keep which documents).
Even though it might sound obvious, make sure you protect your finances – only authorise staff you can trust completely to access your bank accounts and perform transactions.
Also, check your bank statements on a regular basis, always monitor all the transactions you make, and have a record of receipts to ensure that the cash flow is managed effectively and you don’t incur an overdraft, as this could get very expensive. This way you can make certain you have enough money in your account to handle your funds efficiently and to pay your employees, bills, and taxes in time. Keep your eyes open for hidden costs such as charges for payments to other banks or foreign exchange fees to avoid nasty surprises.
Money management and especially customer account management gets increasingly difficult the more customers and transactions you have to handle. Identifying the bank transactions corresponding to a certain customer account can be a tricky task.
If you followed our recommendations and tips above, your business will be on a good way to become a success. However, check on a regular basis if the bank account and its features still fit your needs! Shop around for better options at different banks, more up-to-date features, and so on. You might even get a better deal at your current bank.