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How should small businesses manage their accounts?

As a small business owner, it’s vital to keep a close eye on your income and expenses.Ìý

For example, you need to ensure you have enough money available to cover both everyday spending, such as supplier payments, and larger outlays such as annual tax bills.Ìý

Having a good idea of your financial position is also crucial when making business decisions, including whether to invest in new premises or expand into a new market.

A business bank account helps you keep track of your company accounts and make the right choices regarding your company's direction.

It can also open the door to a range of handy linked products such as a business savings account or a business overdraft, which you can use to keep your company on an even keel through good times and bad.

Banking products that can help you run a successful business include:

• Business current account. The main hub of your business banking activity, your business current account is the account into which you receive payment from clients or customers and from where you make payment to partners, suppliers and potentially even employees. It may also give you access to a business overdraft

• Business savings account. This can be used to save towards anticipated costs, such as your Corporation Tax bill, and may also be used to build up a rainy-day fund to cover unexpected expenses such as equipment breaking down

• Business credit card. This can be used to spread the cost of (or protect) big purchases but should be paid off in full each month where possible to avoid paying high-interest charges 

• Business loan. This offers longer-term, fixed-cost credit. You can use a business loan to spread the cost of expensive items. In return, you make regular repayments over a set period of, say, five or 10 years

Should you have a business bank account for your small business?

Yes. If you run a limited company, then you do need a separate business bank account for your company income and outgoings.

And even if you are a sole trader with no legal obligation to have a separate business account, there are a number of reasons why setting up a business bank account could be a better option than using your personal account.Ìý

These include:

• Being able to accept credit and debit card payments, which is crucial for some companies

• Keeping your business and personal transactions separate, which makes it easy to keep track of your company accounts and prepare your tax return

• Using a business bank account looks more professional when it comes to both taking payment and paying suppliers

What do you need to manage in your business bank account?

How you use a business bank account will depend on the type of business you run as well as the type of account you choose.

Many business bank accounts come with extra features designed to help small business owners manage their company finances.

These vary widely between different accounts and can include:

• A credit check service that provides information on the companies you work with

• Integrated accounting software that lets you organise transactions into different categories such as utility bills and travel expenses

• Access to a variety of potential lines of credit that you can use to grow your business

• A relationship with a dedicated small business adviser who can offer guidance that is tailored to your needs

• Low-cost transfers or preferential exchange rates for companies that make international payments

Whatever type of account you choose, good business bank account management also means checking that only appropriate individuals are authorised to make payments and monitoring and cross-checking your bank statements with your business records on a regular basis.

How should you choose a business bank account?

For many small businesses, low account fees are the main concern. So, it’s always worth shopping around to ensure you are not paying over the odds for your business bank account.

However, as outlined above, different business bank accounts offer different features, so the account terms and conditions will also determine which one is right for you.

These features are not confined to those only offered on business accounts. When making your choice, it’s also wise to ask yourself some questions about how you plan to manage your account, such as:

• Are you happy to manage your account online or via an app – or do you want in-branch support?

• How important to you is it that you earn interest on your account balance?

• Are there any bonus features such as cashback on debit card purchases?

For example, companies or individuals with imperfect credit histories may be better off applying for a business bank account with an online bank that performs less rigorous credit checks.Ìý

When considering opening an account with a small so-called challenger bank, it’s also worth checking if it is covered by the FSCS, which will protect your money (up to £85,000) should the bank go bust.

Should you hire someone to manage your business accounts?

Small businesses are not legally obliged to have an accountant – as long as they fulfil their statutory requirements with HMRC and Companies House.

However, many small business owners prefer to pay an accountant to manage their accounts.

This is because using an accountant not only helps them avoid making mistakes or paying more than they should, it also frees up time for them to concentrate on running the company efficiently and achieving their long-term goals.