When you start running a business, it’s important to be able to clearly separate your own personal money from the cash that’s been generated by the business.
One of the simplest ways to do this is to create a separate business bank account. Opening a specific business account gives you a discrete account to use for all your business transactions and expenses – and that can make life a lot easier further down the line.
Why do you need a separate business bank account?
If you’re running a limited company, it’s a legal requirement to open a business bank account. As a limited company, you and your company are two distinct legal entities. Because of this, you can’t use your own personal current account to make and receive transactions that relate to your business operations.
If you’re self-employed and trading as a sole trader, you’re not legally required to have a separate account – you and your business are seen as the same legal entity. But, regardless of this, it’s still a good idea to keep your personal and business cash in separate accounts.
What are the main benefits of having a separate account?
Having to deal with both your personal current account AND a business bank account may sound like double the work. But the reality is that it’s far more efficient for you to run all your business transactions through this separate account.
Here are the main benefits:
- Your business cash and personal cash are kept separate – in essence, you create two separate pots of money. One that holds your personal cash and one that holds the funds from the business. From a financial management and accounting perspective, this makes your life far easier and less confusing.
- All your business expenses are made from one account – when you pay your suppliers, or buy raw materials for the company, you can make these directly from your business account. This makes the process of tracking your spending far simpler and gives you a better overview of your overall expenditure.
- You can monitor all your cash inflows – your customers will pay you straight into your business account. So all your sales revenue and other income streams will come together in one place, making it easier to keep track of payments and cashflow.
- It’s easier to audit your bank statements – when year-end comes around, your accountant will want to see your bank statements. If you’ve used a personal account for business, that will mean going through each line of the statement to check which transactions are personal and which relate to the business. With a business account, these transactions are already split out in their own bank statement.
- It looks more professional – when you send out invoices, it will look more professional to have the business name under the payee details, rather than your own name. As a business with a separate account, you can cultivate the perception of your brand as an established and successful business with great financial processes.
Should you have a separate tax account too?
It’s good practice to have a second business bank account that’s specifically set aside for paying your business taxes. Limited companies will pay an annual corporation tax bill against their profits. And sole traders will make up to three payments against their self-assessment income tax. Similarly, VAT is generally only paid over quarterly so it can be useful to keep sufficient funds aside for that.
It’s much easier to budget for these payments if you put money aside each month into your separate tax account. This way, you gradually accrue the money over time and ring-fence these funds so they’re instantly available when it’s time to pay your tax bill.
Talk to us about choosing a business banking provider
With so many digital and challenger banks now working in the business banking space, there are plenty of business accounts to choose from. You might want to go with a high-street bank that has plenty of branches for face-to-face contact. Or you might prefer one of the challenger banks so you get the bonuses of online set-up and managing your cash through an app.
If you’re not set up with a business account yet, come and have a chat with us. We can explain the benefits in more detail and help you choose the best account for your business.
Once you’ve sold your business and have received the funds from the sale, you’re then faced with a big question: what happens next?
After guiding the helm of your company, it will be tough to let go. But if the circumstances are right, there’s no reason why exiting the business should be a sad occasion. You’ve built a stable business and personal legacy. You’ve employed a team of talented people and helped them drive their careers. And you’ve brought your products and/or services to a satisfied and loyal customer base.
So, how will you now focus your time and effort? Let’s look at your options…
Retire and live out the entrepreneur’s dream
After many years of hard work, worries and stress, the thought of a business-free lifestyle may well be appealing. But retirement isn’t for everyone. If you have thrived on the pressure, challenges and excitement of being the captain of your business ship, retiring may seem like a step away from the action.
On the flipside, the allure of a more relaxed lifestyle may be strong. With the proceeds from your sale, you should be in a position to make you, your family and those around you very comfortable. It may be that the entrepreneur’s dream of building a business, selling up and retiring to a hot climate is your idea of perfection.
Stay involved in the business
Even though you don’t own the business anymore, it doesn’t mean you have to step away completely from the company. You could remain involved in the business in some capacity, allowing you to ‘keep your hand in’ and support the future course of the business.
For example, you could become:
- A joint partner in the business – you could sell a part share in the business and work as a joint partner with your new investor. This allows you to free up some capital, while maintaining an element of control and influence.
- An external adviser or consultant – you could advise the new owner and their board as an outside adviser. After all, who knows this business better than you? Becoming a consultant could well be an astute move and keeps you in the loop with the future path of the business – while charging out a consultancy fee as an added benefit.
- A non-executive director (NED) – you could join the board as a NED and use your personal experience to help guide and support the new owner and their board. If that’s the route you choose, it’s a good idea to retain some shares in the business, so you have a vested interest in the company’s performance and your own share value.
- An informal adviser to your family – if you’re handing the business down to the next generation of your family, they will almost certainly want your advice. You’ve been through the ups and downs of setting up the business, so you’re in the best position to give your family the guidance and tips they need to run a smooth operation.
Set up a new business
With so much experience behind you, it could be that you’re itching to start the whole business cycle again. If you’ve got the ideas, the capital and the motivation to start another new business, this can be a new and rewarding challenge to get your teeth into.
First time around, you’ll have been a little green and less aware of the many pitfalls of founding a new business. You’re now better prepared and more knowledgeable about what’s required from a founder and business leader. We learn plenty from our mistakes, so you’re in a great position to return to the business cycle again with a new idea.
As with any new businesses venture:
- Make sure you have a detailed breakdown of your business idea
- Write an in-depth business plan that maps out your journey
- Ensure you have the funding to get this idea off the ground
- Be prepared for a period of hard work and lower income before the company takes off.
Do your bit for charity and your community
We all have interests and causes that are close to our heart, so supporting charities and community projects in these areas is a great way to use your money for long-term good.
Donating money to your chosen charity or social enterprise is also a triple whammy:
- You get to provide funding to causes that are close to your heart
- You can be philanthropic and help people who are in challenging situations
- You get the positive impact of tax breaks for donating to charity.
You also have the option of putting your own time into working with these charitable causes. You can use your expertise and experience to guide them, help with fundraising or provide hands-on support at events, community projects or lobbying the Government for greater support.
The end of the road, or a new chapter?
Once the business is sold and you close your office door for the last time, you take a step into the unknown. But with so many varied and valuable options to choose from, your life post-exit need never be boring or predictable.
The potential is there for an exciting new venture, or the pleasure of relaxing in the sunshine by the pool. It’s up to you to define the next chapter in your life and your business career.
If you’re thinking about exiting your business, please do get in touch. We’ll help you plan your exit strategy, add value pre-sale and choose the best options for your personal future.
Talk to us about your next step.
Ascentant Accountancy are based in Derby (01332 981920, info@ascentant.co.uk) and Ripley, Derbyshire (01773 424009, Ripley@ascentant.co.uk), call us to see how we can assist.
