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Self-employment: What financial services do you need?

Original post by Emma Lunn via guardian.co.uk 

In the second of our four-part series, we look at business banking, taking payments and whether you need an accountant

Business bank accounts typically fix a flat monthly fee or charge according to the number and/or size of transactions. Photograph: Peter Dazeley/Getty Images

Fledgling small businesses and the newly self-employed have a number of decisions to make regarding financial services. Is a business bank account necessary? If so, which one? And do you need an accountant?

“A good relationship with your bank is essential to the success of your business,” advises government online resource Business Link. But numerous surveys suggested that many small businesses and one man bands are unhappy with their bank; they feel they don’t get enough support and/or have been refused credit. Last month, new high street player Metro Bank issued research claiming just 11% of “micro businesses”, or those with less than 10 employees, say they have a good relationship with their bank.

Do I need a business account?

If you are a sole trader you might find you have nothing to gain from opening a business bank account. Many freelance workers pay cheques or have Bacs payments made into their personal current account. This is generally more convenient and cheaper than opening a separate business account. However, it is still important to make a note of business income and outgoings for your accounts and tax return.

But if you run a business which involves handling a lot of cash and cheques, your bank might insist on a business account. And if you set up a limited company or partnership that keeps your business finances separate from your personal finances you will definitely need one.

How they work

Business bank accounts offer everything you normally find in a personal account – cash and cheque handling, direct debits and standing orders, debit/cash cards and overdrafts.

Most banks will also give you access to a business banking manager who can advise on issues such as invoice discounting – a form of short-term borrowing – and grants.

But, unlike personal current accounts, business accounts typically have fees or transaction charges, so, when comparing accounts, look at how you will be charged as well as bearing in mind how you will use the account. If you are likely to make a lot of transactions by cash or cheque, an account with a standing charge but no transaction charges may be better. But if you make all of your payments electronically, an account with transaction charges but no standing charge might be cheaper.

Some accounts offer a certain number of free transactions before you get charged. For example, Santander‘s business current account allows you to deposit 100 cheques a month for free, but charges 50p a cheque after that. Businesses can pay in £3,000 a month in cash before charges of 50p per £100 kick in.

Other banks offer cheap accounts, but only if you sign up for other services. For example, a Barclays startup business account costs £5.50 a month, but this is waived for up to two years if you also buy accounting software or a credit-checking service from the bank.

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