Why You Should Have More Than One Bank Account For Your Business

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Firstly to confirm, if you run as a limited company you MUST have a separate business bank account in the name of the business as it is a separate legal entity. If you run your business as a sole trader / self employed, then there is no legal requirement to have a separate bank account but I do highly recommend it and you can read any here.

But I think you should have more than one account and here's why.

When you look at your bank balance, you think that is your cash to spend, to take out the business and to enjoy ... It's not!! You need to pay tax on your profits, so some of that money actually belongs to HMRC, so each month set it aside in a different account and don't spend it, don't borrow from it. Don't look at it, it's not really yours. The best bet is to look at your business and see, on average what your tax bill is as a percentage of your sales and then put that plus a little bit away each month.

This is a more rough and ready calculation than having to work out your profit each month but it means it is actually doable!! I say "and a bit" because it's not an exact science ... and it's better to put too much away and find you've saved yourself a little bonus!!!

For more established businesses, it can be worth having a third account where you build up "rainy day" funds to ensure you have a few months of pay for yourself set aside and for unexpected spend.

There's a book which takes this further and you end up with 7 (yes, seven!) accounts, it's called "Profit First" by Mike Michalowicz and is well worth a read ... It's American and at times I could really tell from the style of writing but it is good for thought and reiterated that my three accounts weren't complete madness!!

If you want some further reading I have blog posts of budgeting for your tax bill that you should read: