What Most Business Owners Get Wrong About Bank Accounts

As a business owner, it's important to be aware of where you're storing your business profits. Many will primarily assume a bank account is just for holding money. In reality, it's both a critical operational and legal tool.

The most common mistakes will include mixing personal and business funds as well as failing to use accounts that offer automated financial forecasting.

Here's what most business owners get wrong about bank accounts when it comes to selecting them.

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Mixing Personal and Business Funds

Using just one bank account for both personal and business expenses is the biggest trap for business owners.

It mixes up your personal and business assets and puts them at legal risk. It also makes bookkeeping incredibly difficult and can cause you to miss out on legitimate tax deductions.

Opening up a dedicated business bank account and using it exclusively for company transactions is the best way of resolving the issue.

Ignoring Hidden Fees and Transaction Limits 

Business accounts are priced differently from personal ones. Owners will often pick the first account they see, and this often results in getting hit with excessive charges.

Many banks will charge per-transaction fees and charge monthly maintenance fees if you dip below a minimum daily balance.

Evaluate your banking needs carefully, and if your business is heavily cash-based or requires frequent international wire transfers, find a bank that has fee structures tailored to your specific volume.

Relying Only On Bank Account

If your bank's systems go down, then you cannot process payroll or accept payments. The FSCS will also only protect up to £85,000 per banking institution. So relying on one bank account for your business finances is risky.

Consider creating a secondary account as a financial contingency plan. Use one for daily operations and then another for tax reserves or higher-yield business savings.

Not Connecting Accounts to Accounting Software

You shouldn't treat your bank account as your sole source of truth. It's helpful to connect it to your account software so that you can track cash flow and produce accurate balance sheets for tax time.

Integrate your bank accounts with cloud-based account platforms to ensure more accuracy in your finances. There is plenty of accounting software available that will integrate effortlessly with your bank account(s).

Lacking Proper Signatory and Entity Setup

Business owners can often rush the setup process when opening up an account. Using your ‘trading as' name instead of your legal entity name on both cheques and invoices can often cause payment rejections.

Double-check your legal incorporation documents and ensure that your account name will match exactly. Establish clear signing authorities for both partners and employees from the beginning.

A business bank account is important to have, and without it, you may find yourself struggling with your finances as a result. With that in mind, make sure you've got a business bank account set up from the very beginning, rather than attempting to set it up at a later date.