Once you’ve completed all the planning for your move from employed to sole trader, it’s time to consider how you intend to manage your finances. As a sole trader there is no legal requirement to open any form of business account, but you should very carefully consider your options.
Most personal bank accounts are free provided you keep your account in credit. Whereas even the most basic of business accounts usually attract fees of some description, a good reason you may think to keep everything personal. But that’s not necessarily the case.
In the early days everything may appear simple. One cheque or bank transfer a week coming in for work completed. One or two going out for equipment and materials. What could be simpler than that? Three or six months down the line and things might not be so easy. Business is increasing. More materials are required for that biggest job yet, and suddenly the van needs a new head gasket. Can you pay out the extra few hundred quid? Is the mortgage on your home due that week? Not the best way to manage a fledgling business.
Opening a second personal account for your business activities is an option. But many of the high street banks frown on personal banking being used for business. When account transactions are increasing, they may well press you to move to one of their business account packages. The problem then is; are the packages available from your particular bank the most economical for the type of business you are running?
Taking the time to shop around for the best sole trader bank account available for your business model is of paramount importance. There are thousands of people every year who choose to be self-employed. Many work solely for themselves, much as they did previously. Others take on a small shop employing one or two other people. While others start a specialist engineering business, or decide on an e-commerce site. Each one needs to find a bank account package best suited to their banking requirements. An account where they can get maximum service, for minimum outlay.
For example, some banks will offer a set monthly charge for business start-ups. Others will accept X number of cheques or electronic transfers before a charge per operation kicks in. While others process X thousands of pounds cash before charging per £100 worth of cash deposits or withdrawals. Without careful consideration of all these different packages a young, growing business can quickly find itself paying out hundreds and even thousands of pounds a year. A figure which can often mean the difference between survival and failure for a new enterprise.
With the explosion in e-commerce business and the relentless drive to a cashless society, many banks have stopped issuing cheque books, and many retailers now refuse to accept payment by cheque. Although cheques, at least for the moment, are still alive and well in the British financial system, they may not be for much longer. The massive increase in electronic payments and bank transfers has helped increase the number of new online banks, and these to, are well worth exploring when looking to minimise your banking costs. After all, if choosing to become a sole trader in this electronic age, why not take advantage of the latest aids – at a price to suit your personal business model.