A business bank account is a requirement for companies registered as limited. However, if you are self-employed or in a partnership, you can choose to continue using your existing personal bank accounts for trading purposes.

However, there are various advantages and disadvantages to using a business bank account that you should be aware of. In this article, we will discuss whether or not you should make the switch, considering all the pros and cons.

Advantages of a Business Bank Account

As you may well know, competition between banks is fierce when it comes to offering accounts to clients. Therefore, they will entice customers with a variety of perks and offers, some of which may be particularly useful for your business. For example, some banks offer free bank transfers for a defined period, while others have bookkeeping software integration or cashback on purchases.

As mentioned before, a business bank account is required by the majority of banks across the UK for making transactions as a limited company. Furthermore, if you are a solo entrepreneur or in a business partnership, some banks may actually refuse to hand out loans or lines of credit unless you have a separate account for business purposes.

You may need a loan to carry out a large purchase for your company, or to keep your business running when you don’t expect any revenue to come in for the next few months. Without the possibility of receiving loans, your business may struggle.

Another advantage is that it makes the process of bookkeeping much faster and simpler. If you use your personal account, you may find it difficult to distinguish between business-related transactions and purchases that were made for personal affairs. Having a separate account will eliminate this confusion and hassle.

Related to this will be that tax returns will be made easier, owing to the fact that you don’t have to spend hours remembering whether each expense or income was for the business or personal.

A business bank account will enable you to build up a credit history for your business. Continue doing transactions through a business account for a while and you will see your credit score increase. A high credit score will allow you to borrow larger sums of money, as well as pay less interest on loans.

Finally, having a separate bank account for business purposes adds an extra layer of financial security. If your business runs into financial troubles, your personal assets are not going to be affected and vice versa.

Disadvantages of a Business Bank Account

There aren’t really any major disadvantages to having a business bank account. Of course, the fact that you will have to manage two accounts rather than one may take a bit of getting used to. But the only minor issue with business bank accounts is that there are extra fees attached. Therefore, if your revenues are very small, the fees may cut into your profits substantially.

Most banks will charge a monthly fee for their business bank accounts. These typically range from £5 to £10. There may also be other costs involved, such as transaction fees (less than 50p per payment) and cash withdrawal fees.

For the majority of businesses however, these costs will be negligible. The time (and therefore, money) saved by having a business bank account will far outweigh this minor inconvenience