What’s Your Legal Structure?
If you are a limited company, your decision is made. You need a business bank account.
Your business is a separate legal entity to you and it needs its own bank account. You don’t need to worry if you have used your personal bank account so far, for a new business that’s normal. Your accountant can sort all that out for you.
What’s important now is that you open a business bank account.
If you don’t have an accountant already, you need one.
If you’re a sole trader, you have more options.
One point though. If you’re a sole trader you ARE a business. It just means you’re not a company.
Option 1: Your Personal Bank Account As Your Business Account
This is a common option freelancers use when starting a business.
Starting a business sounds very grand. It can be as simple as you want to consistently work for clients and you are available and looking for clients (whether you have any or have been paid yet is a side issue). You’ve registered as a sole trader and bob’s your uncle, you’re a business.
You use your personal bank account as your business bank account and you have personal and business transactions in the same account.
- It’s simple
- It’s easy
- It gives you available credit by using your personal overdraft
- You don’t need to wait for the bank to do its thing
- You don’t need to go into a bank/bank website open an account all over again
- You may not feel emotionally ready to open a ‘grown up’ business bank account
- It can give you more flexibility when costs are higher than income
- It probably breaks the terms and conditions of your bank account
- You can’t have ‘trading as’ on your account name, so you can have payments cleared addressed to you or your business name
- It allows you to pretend you don’t have a real business
- It takes time, money and sanity separating out your business transactions from your personal
- Some companies won’t hire you unless you have a business bank account
- You can’t claim bank charges and interest as tax-deductible expenses
- HMRC has an excuse to look into your personal affairs if you’re the random person they choose to check your business records
Remember, you can use personal credit/money to fund business investments (like coaching or a course) without mixing your personal and business bank transactions.
Option 2: A Business Bank Account
You use a business bank account as your business bank account.
The first step to having a grown up business is a business bank account. That doesn’t mean you need to jump in the river if you aren’t emotionally ready to open one yet. It can take time to be ready.
(If you’re a limited company and didn’t read what I said at the top of this article, you DO need a biz bank account so go get one.)
Let’s look at the pro’s and con’s of having a business bank account for your business.
- You can have ‘trading as’ on your account name so you can have payments cleared addressed to you or your business name
- It allows you to feel proud of yourself that you have a real business and you’re in your money power
- You can claim bank charges and interest as tax-deductible expenses
- HMRC has no excuse to look into your personal affairs if you’re the random person they choose to check your business records
- You kick ass when after an appointment justifying yourself to bank staff who have little idea of business or digital or home working or online business (frequently the case if anyone from a bank is reading this), you have yourself a business bank account and you’re on your way
- It can be as simple and easy as filling in some forms, a half hour at the bank with a nice member of staff, and new gadgets through the post
- It can be a pain in the ass when banks treat you like an idiot, take ages, have no idea about what you’re doing and patronise your femaleness and ability to earn
- If you have problems with forms, you’ll need to get a friend or biz friend to help
- You may have less access to credit and it costs more
- You need to wait for the bank to do its thing
Deciding To Use A Personal Or Business Bank Account
The pro’s and con’s divide into the ‘sensible’ logical ones that you’ll find on any business website.
Then there are the ones no-one talks about.
That’s why it’s such a personal decision.
(Please bear in mind that technically, any option other than having a business bank account breaks bank terms and conditions.)
Which is right for you?
It’s your decision as a sole trader whether you use a personal bank account for business or open a business bank account. (Limited companies, open a business bank account).
Take an informed decision from your heart as well as your head and keep it simple.
Paraphrased from and with thanks to Rosie’s very useful posts at http://onemanbandaccounting.co.uk/