Separating business and personal money
I didn’t set up a separate business bank account until I’d been trading for nearly six years.
I’ve been self-employed for nearly six years, but I didn’t set up a business bank account until earlier this year.
There were plenty of reasons why I didn’t use one:
- They’re not obligatory
As a sole trader, it’s legal to run a cash-only basis that doesn’t have a bank account. I’m not advocating this, but I saw a separate bank account as extra admin.
When I became self-employed, business accounts were expensive and my income fluctuated greatly. There are still plenty of expensive business accounts about, but plenty of newer banks offer free accounts with generous exchange rates.
As I’d only ever used my personal account, I wasn’t sure how to consolidate everything in my accounting software and claim things like working from home expenses.
- Status quo
My system had worked for a long time and clients had my existing banking details: I didn’t want to upset the apple cart.
- Business name
This might seem trivial, but I hadn’t decided if I’d stick with my business name — using a personal account let me keep things flexible.
Despite my previous inertia, I decided to start looking into business bank accounts. I felt now was the time to set this up for a range of reasons:
- A business bank account is the first step to creating some separation between my money and the business’ money.
- It looks more professional
- Since setting up bank feeds to my account software, I was more comfortable with how everything could be consolidated
- Setting up a business bank account is cheaper and easier than ever
- I’d learned that most personal accounts don’t allow for business use in T&Cs.
Choosing a provider
There are lots of business bank accounts on the market, many of which are free to set up. To whittle down the options, I created a set of criteria.
I wanted an account that:
- Is an actual bank!*
- Is free or very cheap
- Have an app that notified of payments received
- Integrate with my accounting software
- Offer phone and email support
* NB: Many newer banks aren’t actually banks, so don’t offer the FSCS protection if the bank was to go under.
After opening the account, I emailed my clients to let them know about the change of emails. Then began the unenviable task of changing the payment details for the apps, services and subscriptions I use in my business.
This turns out to be a good opportunity to cull some services I was no longer using. Emailing my clients also offered the perfect chance to introduce GoCardless for recurring payments.
Since opening this account, I’ve noticed a few benefits. As my business’ money is now separate, it’s easier to keep track of finances, save money for business projects I might want to invest in and get an idea of the cash flow at a glance.
It’s also much quicker to submit my tax returns. There’s still the occasional personal expense, but now I can quickly run through income and expenses from a single account.
Despite the time changing payment details and direct debits, opening a separate business bank account has been a worthwhile exercise. In the grand scheme of thing, a business bank account offers small benefits, but it’s absolutely worth it.
Retainers are seen as the holy grail of freelance work, but if they’re not set up correctly they’re more trouble than they’re worth.Read
Useful stuff for freelancers
There are millions of articles about how to become a freelancer online – here are some standout reads.Read
Are 50/50 payments killing your cash flow?
Breaking project payments into two 50% payments is a common deposit structure, but could it be improved?Read