Small business bank accounts are important to any business and if used correctly, can save you money.
Setting up a small business account should be a well-thought-out process, as there are many banks and financial institutions that offer different types of accounts and services. There are many different kinds of small business accounts, so choosing the one that’s most appropriate for you can make accounting easier.
What is a small business bank account?
A small business is one that’s owned and operated by an individual or small group of individuals. It usually has a small number of employees and low economic activity. While definitions are sketchy, the Australian Bureau of Statistics classifies a business with less than 20 employees as a small business, whereas the Australian Taxation Office (ATO) defines a small business as one with an annual turnover of less than $2 million. This figure is still substantial, so these types of businesses will usually set up a specific bank account to handle their finances. A small business bank account is suitable for these type of business operations, allowing transactions to be made from the business to clients, contractors and customers.
How do small business accounts work?
To open any business account, more banks today require an Australian Business Number (ABN), which can be obtained online for free through the ATO’s website. Banks generally have different requirements from businesses, so it may be worthwhile to do your research before applying.
Opening a small business bank account can be useful for a few reasons:
Building a financial and credit history for the business
Managing finances within the business
Using an account which caters to business needs rather than personal needs
Showing professionalism to clients and customers
What are the types of small business bank accounts available?
Depending on the nature of your business, you will find that there are particular bank accounts that provide more benefits than others. Depending on your cash flow and spending patterns, your banking requirements may vary.
Transaction accounts. These are designed for the everyday spending of your business and provide more flexibility. These pay minimal interest in comparison to savings accounts and term deposits, so if you need to store your funds temporarily, then a transaction account may be suitable. Be mindful that a number of banks have a maximum number of transactions you can make during a month, after which a fee will apply for any transactions made after this limit is reached. Most of these accounts also come with a debit card so you allocate the spending to certain employees. The most common transaction banking features are: internet banking, credits and debits to accounts, BPAY, overdrafts, cheque product facilities and payroll processing arrangements.
Savings accounts. These types of accounts are designed to manage cash that you won’t need for routine transactions. It’ll take longer to get access to your money because you’ll have to transfer it to a transaction account, but you’ll earn a higher rate of interest, motivating you to leave the funds in the account for as long as possible. If you experience fluctuating levels of cash flow, you may want to use a high interest savings account to hold funds that you need to access in the future.
Term deposits. Suitable for investing surplus funds, these type of accounts lock away funds for a set period of time with a fixed interest rate. Small businesses could use these accounts as a place to secure their funds for any future business developments.
High Interest Business Savings
How to compare small business bank accounts
Your type of business. Whether your business structure is a sole trader, partnership or incorporated business, banks provide a range of options that can suit the nature of your business. You may notice that banks provide about five different types of accounts, so it pays to do your research and picture how your business will function with that particular account.
Application process. Most banks nowadays allow you to open an account online, so if you have your documents with you the process is relatively easy.
Fees. This is particularly important if you plan on doing many transactions, or international and online transactions that could attract a currency conversion fee. Cheque facilities often incur a fee too, so if you can electronically transfer funds, it could save you money in the long run. Account keeping fees can also add up in the long term.
Linked debit card. Having a linked MasterCard or Visa debit card can make everyday transactions easier, as well as the option to use the card online to make purchases.
Accessibility. If you need to do your banking in-branch, then you may want to consider a bank that has extended opening hours. Alternatively, you could use the online services provided by your bank which usually allows 24/7 access to your business funds.
Interest rates. If you’re dealing with large sums of money, then using a high interest savings account could give you some extra cash flow.
Merchant facilities. Letting your customers pay for their transactions using a credit card or debit card can help increase revenue for your business, as you have more payment options. Before choosing, look at the volume of EFTPOS transactions your business can expect, and compare whether the fees and charges for having this feature are worth it.
The right bank. If your customers tend to use cash for their purchases, then you may need a bank that does have a convenient branch near your business premises as you can do your banking in person.
Small business banking accounts
Pros and cons of a small business bank account
Pros
Simple administration. Having these accounts let you organise your business expenditure effectively, making it easy to track your cash flow coming in and out. Also, towards the end of the financial year, it’s easier to know what expenses are business-related.
Profitability. Since your personal finances are separate to your business finances, it’s easier to understand how your business is truly performing.
Legalities. When you have your own business, there are liability issues. Having your business separate from your personal assets will ensure that you will not be personally liable for any business implications. In terms of insurances, its also easier to manage with a separate bank account.
Cons
Fees and charges. These can be a bit of trap, but in the business account space are generally unavoidable. This is why it’s important to compare different bank accounts so you always get the best deal for your situation.
Things to avoid with small business bank accounts
Not knowing your business needs. Before you start looking around for a bank, you need to consider why you need a business account in the first place. If in the long-term, you plan to use specialised services, such as investment help, then you may want a bank that supports you with your business goals.
Not being prepared. Having a financial advisor if you don’t already have one will make the application process a lot easier. You will also need a business name and be registered with the ATO.
About how to open a bank account
Frequently asked questions about small business bank accounts
Where can I find an online business account? Please read our reviews on the ANZ Business Online Saver and the Commonwealth Bank Business Online Saver to find out more..
Where can I find the best savings account in Australia? Please see our best saving accounts page.
Where can I find a debit card with rewards? Please see our review on reward transaction accounts.
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