Last week, we looked at registering your company, one of the first procedural steps you will face as a company owner. After this crucial landmark, you will need to set up a business bank account. Here, our four companies owners discuss the procedure and what to bear in mind.
Mahin Khawaja, founder, Adroit Accountax
Having set Adroit up, one of the first things I needed to do was set up a business bank account so that I could invoice clients and make payments.
You can’t use your existing personal bank account; it has to be a business account for legal and other reasons. I decided that it would be most convenient to open a business account where I personally already banked. It made the process quicker and easier and that is what we often recommend to clients.
For example, your bank will already have proof of ID and proof of address from current information; sometimes it can all be done online.
Another thing to note are charges and free banking periods. All banks offer free banking from 12 months to 18 months so it can be important to check charges, especially if your business deals with a lot of cash, such as a grocery store.
Brian Lonsdale, managing director, Smarter Digital Marketing
At the beginning we were taking in a very low level of income each month so setting up a business account wasn’t my main priority.
However, as the business started to grow and as we gained more clients I had to set the business account up properly.
The business account was fairly easy to set up, however, I had to fill in many fields on a paper form and send it back to the bank.
I thought I would have been able to set this up online, however, it involved a few phone calls, some ID checks, some further questions from the bank and patience for a few weeks.
Graeme Thomas, owner, Johnny F Designs
This was slightly more of a challenge than registering. Unlike a traditional current account, you can’t set up a business account online.
You need to make an appointment to meet with a business manager at the bank.
Most banks offer free business banking for the first two years, but don’t forget to look around after the two years are up as bank fees can quickly add up. It is important to note that you need to have the limited company registered with Companies House at least a week before your meeting, as it takes their system that long to update. Without a company number you can’t get a bank account.
Elizabeth Malone Johnstone, director, Digitise This
Towards the end of my first year in business, I decided it was time to work as a limited company. It was partly a perception thing but mostly I knew I wanted to eventually expand the business beyond myself.
Looking back now, it was a total headache to move from a VAT-registered sole trader to a VAT-registered limited company.
I spent many painful hours on the phone to HMRC, completing and resubmitting forms and generally tearing my hair out.
I had to set up a new business bank account for the limited company which made my accounts more complicated for a few months.
A year on and I have to keep the old bank account open as I still get the odd client paying into it, despite repeated reminders.
The change of legal entity also voided my professional indemnity insurance which meant additional hassle and cost to arrange for new cover.
Need an overseas business bank account? Find out how this fintech can help
Setting up an overseas business bank account can be incredibly difficult. It can involve visiting the country to fill out paperwork, paying a monthly fee to keep the account open, or depositing a minimum amount to keep it open. Fortunately there’s been an influx of new fintech companies that want to make it easier and cheaper for businesses to operate internationally. An example is TransferWise, which specialises in international payments.
It’s a multi-currency account that comes with unique account details for the US, Eurozone, UK and Australia. As an alternative to banks, businesses can use these account details to get paid in US dollars, euros, pounds, and Australian dollars for free. It can be activated online – and you don’t need a local address to have an account. For example, if you’re a UK business selling in Europe, you can sell in euros, use your European bank details to get paid like a local, and then convert your earnings back into pounds – all within your TransferWise account.
Your money is always converted at the mid-market exchange rate as well. The only fee you’ll face is a small, upfront fee on the value of your transfer. This makes them up to eight times cheaper than banks. This could make them a good option as a supplementary business account overseas to support your international activity without the hassle of opening a typical business bank account abroad.
This article was updated on June 17th 2018.