Business Bank Accounts for Small Business

One of the first financial services a business will require is a business bank acccount. Although you can start off a small business by using your own banking facilities, it’s wiser to open a dedicated business banking account. There are a wide range of small business bank accounts available, including checking and deposit accounts, savings accounts as well as ways of investing business capital.

Current Accounts for Small Businesses

Most banks offer a standard checking account for small businesses. Since they are so eager to attract custom, they usually offer a free trial period of between 12 and 18 months.

As well as the trial period, a few banks offer free lifetime banking for business. Free UK business bank accounts are available from Alliance & Leicester and Santander. Note that it’s worth checking the small print of these free bank account offers. Many have limits on the number of free transactions you can carry out every month. Although the average small business is unlikely to exceed this limit, some business types do generate large numbers of monthly transactions, particularly those businesses in the retail trade.

When choosing a small business account make sure the bank supports your particular type of accountancy software. Businesses with specific requirements might also need to investigate that their bank supports special facilities. For example, businesses who take credit card payments over the Internet will usually require a Merchant Account from their banking provider.

Business Savings Accounts

Most businesses will have a pot of capital that they want to put aside for emergencies, or to save for further capital investment as the business grows. Many business banking providers offer both checking/current as well as savings accounts.

Business savings accounts generally offer good interest rates, although in many cases a business will have to pay tax on the savings interest. This is usually reported to the tax authorities through an end of year return.

As with consumer accounts, business savings accounts offer either instant access or notice period savings accounts. Expect to receive a larger rate of interest for keeping your business capital locked away for a longer timescale.

Other things to look for when choosing and reviewing a business saving account include:

  • Look for an account with no or very low charges.
  • Check for notice withdrawal periods.
  • Make sure it’s quick and easy to move money between a checking and savings account.
  • Make sure your business capital is safe in case the bank gets into financial difficulties.
  • Make sure the bank’s staff are knowledgeable about business banking, as banks who concentrate on the consumer market often offer a poor service to business.
  • Ensure that the bank account can be operated by 3rd parties you might employ, like small business accounts.
  • Check that it’s easy to use the bank account with your accounting business software (if you’re using any).

Business Investments

Many small businesses are set up by people who already have jobs. Consequently the business may accumulate profits. Usually it is better to take profits out of a business. However, if you take too much income from a small business then the tax authorities might think that you are intentionally running a company down. While a very small, single person company can normally get away with this, the authorities might get suspicious of a company with employees starts doing this.

So it is often desirable to invest some of the business money in longer term investments. There are a wide range of high yield investments that a business can invest in. Most stockbrokers and discount brokers specifically target the small private investor. However, there are some brokers who allow an investment account to be opened in a business name. These include SelfTrade, who offer a company dealing account.

The pitfalls of investing a company’s income in the financial markets include the possibility that the markets might fall, so the value of the business assets will also fall. Another thing to watch out for is that some countries have rules about how and where a business can invest its cash. For example, UK companies that derive most of their income from their investments could actually be classed as an investment company. Investment companies have their own particular set of rules and regulations. This is something to watch out for if your company has a lot of investments but a low level of income from business activities. In some cases it may be more beneficial to make the company dormant, but a tax adviser will be able to give detailed specific advice on these matters.

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