A SYMPATHETIC BANK AND
BRANCH MANAGER can go a long
way to easing you through any business
turbulence you may encounter. Indeed,
with much upset about how some of the banks
behaved during
the last down
turn, choosing
a bank can be
critical to your
success and
your survival.
So how do
you make the
choice? What is a “good” bank? The
answer depends on your priorities.
Some might consider proximity to
a branch on the way home important
because they have cash to deposit – a
key consider for retailers even with
card transactions rising. For them,
convenience is matched up with a
reduction in risk.
Others may want a bank with a UK
base. Dealing with call centres can be
bad enough and highly impersonal,
but add into the mix a thick overseas
accent or someone who doesn’t
understand the nuances of UK life and
the relationship is bound to become
strained. And let’s not forget that some may have to dial non-standard,
chargeable numbers such as 0845,
0870 and 0844. For them, alternative
number website saynoto0870.com is a
Godsend.
But there are other considerations to
bear in mind – online security, banking
facilities and of course cost. Let’s look
at the options in detail.
First principles
Depending on the complexity of
your business it’s entirely possible that
you can use a personal bank account.
You’ll get away with this if you’re
unincorporated, say a microbusiness or
a sole trader.
However, it’s not recommended for a
number of reasons. Firstly, you’ll have
no separation of personal and business
monies; in other words, you’ll not be
able to easily tell how well the business
is performing. Secondly, and this has a serious unintended consequence,
HMRC does not like the practice and
if it decides to investigate your affairs
(by random selection or following a
breach) it can then latch on to your use of a personal bank account as
an excuse to widen the investigation
into other aspects of your (personal) finances.
Ideally seek a business account that offers a
debit, credit
or charge card
in addition to cheques.
Having a
business card
has the added
bene t of
insulating a user from any personal liabilities for
the business transaction.
Filtering the accounts
Taking a stroll down the high street
is the most obvious way of finding a
bank. But as a process it is very time-
consuming. An alternative is a bank
comparison tool offered by the British
Bankers Association (https://www.bba.
org.uk/customers/business-banking/
business-accounts/business-account- finder-tool/).
In simple
terms, it allows
a search to
be conducted
based on entity
(sole trader,
partnership,
company,
club/society,
or charity)
and then
on facilities
required
(branch, debit
card, overdraft,
and credit
interest). Upon
making the
appropriate
choices the
matching range of bank accounts
is presented – the range can be
bewilderingly long.
At the time of writing (September
2016) a limited company can apply for
accounts with a wide array of charges.
Cheques written can cost anywhere
from nothing (Santander Business
current account – four levels of at
rate monthly fee apply based on levels
of cash deposited) to £1.50 (Danske
Bank Small Business Digital). Exactly
the same charges apply for cash
deposited.
On a positive note, Santander will,
from November, pay 0.1% interest on credit balances while Allied Irish Bank
(Business Current) will pay 0.05%. The
majority pay nothing.
Remember that it’s also worth
looking at the individual bank websites
as the BBA website can lag on changes
the banks make to tariffs.
Apart from the BBA, from the
end of July (2016), a second online
comparison tool became available to
SMEs. Operated by British Banking
Insight, it’s a collaboration between
HM Treasury, the British Chambers
of Commerce and the Federation of
Small Businesses. It’s independent of
any bank but has an advisory group
consisting of a number of banks and
the government.
To be found at http://www.businessbankinginsight.co.uk/current-
accounts/, it offers suggestions based
on ratings on charges and fees, ease of
contact, understanding of business, fair
treatment, and having concern for the
client.
Visitors search for recommended
banks using criteria based on turnover, business sector
(there’s a
dropdown for
wholesale and
retail), level of
international
activity, age of business,
number of
employees, and
location.
Each option
has a subset of
categories to
refine the search.
The returned
results list only
the organisation
and “user”
reviews – no
product options are detailed – but there are direct links
to the institutions. The site is new and
the number of reviews needs to grow,
but nevertheless it is an interesting way
of searching for a new bank.
As an example, an SME searching
for a bank in the “other services
sector” would see 32 institutions
returned. Again, at the time of writing,
in prime position based on a rating of 100% is Norwich & Peterborough
Building Society, second is the FSB,
also with a 100% rating, and third is
Cashplus, also with a 100% rating. Last
is Barclays with a rating of just 26%.
Not featured on either site is detail on loan accounts or foreign currency
accounts. Nor is there detail on
merchant accounts that allow for the
processing of credit and debit card
transactions – but that is another subject
entirely for which help can be found on
the UK Cards Association site at http://bit.ly/JnCcMc.
One thing you should do is look
for any introductory rates that may be
available. These are presently few and
far between and are invariably targeted
to the new business with offers of
time-limited free banking. At the time
of writing, Santander offers a 12-month
deal, TSB gives 18 months, while
Yorkshire offers 25 months of free
banking. But rms should look at the
charges beyond the initial period.
Cost isn’t king
While it’s entirely logical that businesses
will, to an extent, focus on the cost of
the banking arrangement, it shouldn’t be
the tail that wags the dog – it’s only one
part of the calculation.
Consider if you want a branch or if
banking facilities via a Post Office or
post box will suffice. Also, do you want
face-to-face contact with a manager or
small business adviser (not that they are
always real experts in business)?
Consider if you need an overdraft or
other borrowing facilities. How good is
your credit rating, both personally and
for the business? It’s naturally going to
be harder to open a new account with
an overdraft or if you have financial
issues with your old bank – by definition
this will restrict the institutions open to
you. While you may get a lower cost deal
elsewhere, your present bank may be the
most likely to extend borrowing as you’ll
have a track record.
Do you want the convenience of
being able to view your personal
account and cards and business account
and cards in the same place? That’s
something the NatWest online and
mobile apps offer.
And what of security? With the likes
of HSBC and First Direct moving
towards voice recognition security,
the topic is undergoing much change.
HSBC still uses a fob-type device to log
on, which just adds bulk to a pocket.
On the convenience front, RBS and
NatWest use a text message process for first time authentication on smartphone,
but after that use a PIN and finger print
(on iPhone) for security when logging
on (both still rely on a calculator-style
device and card for new transactions).
There is no perfect solution, but
you need to nd a bank and process
that won’t irritate you.
With an eye to working with your
accounts software – and accountant
– ensure that the formats in which
the banks allow you to download
reports are compatible with any
software you use. And apart from
incompatibility it’ll be the simple
things such as debits and credits
columns being in the wrong order
that will cause stress and eye-strain.
Unlike personal accounts, as
noted earlier, very few business
accounts pay interest. There’s no
quid pro quo here, so leaving large
balances in a current account is
futile; rms should plan to sweep
excess cash into some form of
savings account.
Obviously rates can change and
the higher the rate the longer the
notice period, so when chasing the
higher rates ensure that it’s with
cash that isn’t needed as working
capital.
For example, at the time of
writing, Nationwide offers 0.9% on a one-year fixed notice account.
Those wanting instant notice access
should consider Nationwide’s
Business Instant Saver which pays
0.80%. Neither are great, but it’s
better than nothing.
Splitting your banking requirements
up between different providers
may work with other elements of
borrowing including commercial
mortgages and credit cards. There are
a number of websites that may offer
assistance, including:
- http://moneyfacts.co.uk/busine…
- http://www.moneysupermarket.co… , and
- http://www.moneysavingexpert.c…
To conclude
Just because you’re running a
business doesn’t mean you shouldn’t
shop around for the best deal. For
the best chance of success, you need
to invest time and keep a weather
eye out on the market. If your
circumstances change or the bank
changes its tariffs, you need to be
prepared to move.
