Updated: 23/2/2012

Whatever the size or type of business you are setting up, it’s essential to have a separate bank account of some sort. If you are going freelance or just making ‘a bit on the side’ then you could easily make do with a simple second account.

However, if you are serious about your business you will probably need (and want) a proper business account for all your transactions.

Why do you need two accounts?

If you are setting up a new business or operating as a freelancer it is vital that you separate your personal and business finances. Even if you are only freelancing on a temporary or part-time basis there are many reasons to separate your finances:

• The tax office will need to see genuine business incomings and outgoings. It doesn’t want to have to go through your personal transactions.
• Your accountant will charge you more if he/she has to sift through your personal accounts to pick out the actual business transactions.
• It allows you to differentiate between the two funds and to keep track of your business expenditure and income.
• It shows a professional attitude. The only way people will take your business seriously is if you do too. Accept cheques made out to the business and not your own personal name. This establishes a divide between you and your business.

Freelancing

If you are freelance you don’t have to have an actual business account for your work. You can just have a separate personal bank account.

In fact, if you do that, we recommend setting up an account with an entirely different bank to your current one – just to keep them on their toes. Don’t let any one bank think they own you – they need to feel that you could leave at any moment so that they are nice to you.

Setting up a separate account will enable you to pay your personal and household bills with the first account and your business expenses with the second. You can also pay yourself a kind of wage (known to accountants as ‘drawings’) from the second.

Full-time business

If you are setting up a new business then a business account would be an asset to have. Many accounts offer great deals and many even offer a free service. We go into more detail below regarding free accounts; however, it is worth looking at those that cost, too.

If you can foresee a lot of money going through your account, or a lot of daily transactions, then you may not qualify for a free account. Also, if you think you’re going to need to use business services, such as large loans or foreign transactions, then it could be worth going for one that charges each month.

Before you open an account…

When it comes to setting up a business account you need to research the best deal for you and your business. Everyone needs different features from a bank and if you shop around you can get the best for you.

In order to make sure you’re getting the most from your bank, here is a checklist of some things you should be asking:

• Do they offer free day-to-day banking – and if so, for how long?
• What’s included in the package?
• What are the monthly transaction limits?
• Do you have to keep a minimum balance in the account?
• Is there a monthly charge for the account? If so, how much?
• How do you access the account and pay money in – internet, telephone, cash machines or post?
• Will you get a dedicated relationship manager when you need one?
• Will you be offered a business debit card?
• Do you get an overdraft facility, and if so what’s the cost?
• Are there any hidden charges?

Business accounts for free

Some banks and building societies are now offering free banking for small businesses. Yes, free! But before you sign yourself up, make sure you are fully aware of the contract.

Some are limited to a certain period of time and others offer low or no interest rate. All are worth looking at if you are serious about your business. We have a few recommendations:

RBS Start-up Package

RBS offers a great start-up package with its business account – where you can get two years of free banking and a £500 fee-free overdraft. Provided you keep at least £1 in your account, you won’t need to worry about charges, with all transactions completely free as long as your turnover is under £1million.

Santander Business Account

Santander advertises free day-to-day banking for up to 18 months with its account for businesses started within the last year. After this period you will be moved to a business account tariff of your choosing. Santander gears its services towards businesses with a turnover below £250k so you may want to look elsewhere if you do no meet this criteria.

While on the start-up account there will be no limits on deposits and no fees on any payments or withdrawals. Once you move to a standard tariff business account there will still be no fees on payments or withdrawals but you will be charged a monthly fee as well as have a limit put on your deposits allowed each month.

Lloyds TSB Business extra package

Lloyds TSB offer free banking for the first 18 months of business. After 18 months you can choose the package that suits you.

Currently, it’s best to continue reaping the benefits of free banking as the account is offering a 0% interest rate. You would need to find a package that most suits yourself and your business.

Getting started

Now you’re fuelled with the questions you need to ask and some of the offers on the market, you need to go shopping! Remember that banks are looking for your business and should be able to offer you a service and account that meet your needs.

If they can’t – find one that can.

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