Posted by Joy & Co Chartered Certified Accountants on 6th June 2020
In theory, if you’re running a business you could keep the cash in a biscuit tin under the bed. However there are a wealth of reasons why you should have a bank account and why it should be a separate account dedicated to the business.
Obviously for reasons of convenience and credibility it makes sense to keep your businessfunds in a bank account rather than a biscuit tin. Envelopes of cash are likely to be looked on with suspicion from your suppliers and no client wants to be handing over bundles of bank notes. More importantly, you can’t move cash around at the touch of a button without a bank account.
If you’re a sole trader you’re not legally required to have a business bank account so you could arguably run your business through your personal account. However,most banks frown on this and insist that you open a business account. If you’re using a trading name it makes sense to have a bank account name that matches your business name rather than in the name, say, Joe Bloggs.
If you’re a limited company it’s a legal requirement to be able to accurately quantify the cash held by the company, hence the need for a bank account. As a company is a separate legal entity from its owners the bank account needs to be in the company name and so will have to be a business account.
Whether you’re a sole trader or a limited company it’s really important that your business and personal finances are kept separate. Don’t be tempted to dip into the business bank account for personal expenditure just because it’s convenient. Bear in mind that if you’re a limited company the money is not yours to dip into. If you’re taking money from your company it has to be either a salary, a loan or a dividend.
Keeping business and personal finances separate makes things a lot quicker and easier when it comes to doing your books. If things have been kept separate there’s little chance of getting in a mess because you’ve mixed your business and personal costs and are now struggling to figure out which is which. It also keeps your personal expenditure away from scrutiny by the tax man should he ever come looking.
Finally it’s a very good idea to get a debit card on your bank account and use it for all business expenditure. In this way an automatic record is created as it will show up on your bank statement and make bookkeeping much easier.