Separating business and personal money

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.
• Cost
  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. 
• Complexity
  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.

Getting serious

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.

The results

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.