Is a business account for sole trader absolutely necessary?

saver6

Just that really. My husband, having been made redundant last week, has decided to start up as a self employed handyman as from what we've seen in our area, it would do really well, and he was getting severely depressed at the thought of applying for jobs in his trade where redundancies seem to be rife anyway. We're looking on it as an opportunity as the redundancy payout will easily cover all start up costs, including living expenses for 2 months should that become necessary.

I'm 100% behind him on this and I qualified in marketing, so I'm handling all that side. We've already made a checklist of our To Do's as well. However I also volunteered to take care of the financial side as that will be the one thing that will make him feel bogged down and unmotivated. So far I feel quite confident about handling the cashflow etc, although a little daunting. I can handle it, but for some things I think I need a little advice on, and my first question is whether it is absolutely necessary to set up a business bank account, and if so, how does he take a wage from it?

Thanks all. Tough times for everyone....

sss555s

If your giving it a good go then why not open a business account?

It can get messy if you use your personal account and i can't see the downside to opening a business account.

He can use his personal account as far as i know (at least to get going) but it would make your bookwork harder i expect.

fengirl_2

It's good practice to open a business bank account as this enables you to absolutely separate business from private finances. All income (including cash) should go through the account, as should expenditure. If he ever needs cash for business use, implement a proper imprest system. That way, you will be squeaky clean if you are ever investigated.
Drawings would just come from the business bank account as necessary - either by cheque or maybe a monthly DD into his personal account.

McKneff

Open a business account, put some capital in it and take it from there.
Its gets really messy if you use a personal account and is so much easier.
I used a Simplex D book from WHSmiths and it was a doddle, you could see everything at a glance at any given time.

As to the wage, just withdraw some money each week, i believe these are known as drawings.
Good luck, its an exciting time for you both. (as well as daunting)

cocobean12

The only drawback with a business account is the charges, we were in exactly the same position as you some years back, Barclays offered free business banking for the first year and then the charges roll in, you get charged for putting cheques in, taking money out, overdrafts and a monthly fee aswell!! The charges may not seem much but they do add-up, especially for a trade with a relatively small turnover maybe. Search for business accounts which have perhaps a longer free period, in true MSE style you could always swap to another Bank when the offer expires?

With regards to accounting, I used manual accounts books for years then switched to Personal Accountz software on the PC, its so easy, there are plenty of others around too, just my personal preference.

I wish you both good luck and hope this has been of some help (my first reply on here!!!)

saver6

Thanks guys. The more I sat and thought about it the more logical it seemed to just set one up regardless (have already researched best buys - it seems A&L are good at the mo, but will send hubby along to our current account providers to see what they can do "in person" so to speak). Thanks for the advice about "drawing" his own wages. Nice way to try to keep a regular cash flow going (and personal budget!)

It is definitely exciting, just hoping that it all works out ok. Simplex D... must go searching for that I think! Although I do prefer PC, I''ll probably go manual for a bit first to get used to the system. God, all the stuff to get, receipt books, letterheads for quotes, business cards, flyers - argh! But I've never seen hubby so excited about something so how can I possibly not support and help, huh?

fengirl_2

As an ex accountant, I would not recommend Simplex D - it will increase your accountancy fees. Use a cash book or spreadsheet with a page for each month which analyises the different outgoings under the headings which you would find in a set of accounts.

Ballymackeonan

I'd second that about Simplex - more like complex! The only advantage it has is that, if it's kept up to date, you are balancing your cash and lodgements regularly, and checking that against the till. It's really best for small, non-VAT registered shops.

Remeber that when you're deciding on what system to use and the split of expenses, it's important that it gives you information, it's not just for your accountant. It's important as well that it's kept up to date - the easiest thing in the worlf is to let things drift and not remember what a payment was for. Ask for receipts all the time, and it's also a good idea for your husband to have, say, a diary with him where he notes doen work done and all
expenses, a lot of prople pay more tax than they need to because they don't think to record a few stamps etc

cocobean12

Oh, just another tip that may help you...... to make your accounts so much easier whatever type you decide to use, if your husband has enough 'float' to use, try and buy and pay for materials straightaway rather than use accounts with Builders Merchants etc, these seem like a good idea at the time but make balancing the books harder when you have receipts but no payments to be marked off against it, I like to keep things very very simple! I'm not an accountant so there may be an easier way of doing these things, but I just try and keep it easy!

As I said before, I used manual books for a few years and had some huge headaches with it, especially when the OH would produce a receipt 3 months later and it needed to be logged - aaaaargh! Now with PC based program I can put it in at anytime and it re-calculates the whole lot for me - bliss!

Sorry for waffling on, I just remember what it was like for us when we started and didnt know where to begin!

Savvy_Sue

The alternative to a proper business account, if he's going to be a sole trader, would be a 'normal' account in his sole name, just to keep things separate from your everyday money. However, if the bank realises it's being used for business purposes, they may not be happy. But it gives you a couple of months while you see whether this idea 'floats' or not.

Similarly, it will probably be difficult (impossible?) to get a Credit Card for a new business, but getting a personal one which is kept separate from your 'everyday' expenditure can simplify matters.

He needs to register with HMRC as self-employed quite promptly, but I'm sure that's already on your list. And if businesslink aren't yet on your list, get them on now: they will have a lot of useful information.

missm29

two years ago my other half set up as a sole trader in construction, we never got a business account due to all the fees and restrictions, almost applied for an abbey business account until we saw the terms, i forget what put us off, if i remember correctly you can't you the counter. Found the business manager at natwest really good, and when we finally do have to open an account it will be there, they did free banking for a certain time.

We use our personal account at halifax, the woman did once mention that there were alot of transactions on our account and i joked that i'm a shopaholic and that was the end of it, well i do like to shop, i probably write about 7 cheques a month and pay in about 3/4. I imagine if there were more transactions paying money in, then they might twig, we do have a few account so should probably spread the money out. Our accountant isn't keen on us using our personal account as all the transactions are mixed, i've got a book from smiths and i keep a note of all the business transactions in/out and fill it daily, i put all the receipts in a box for diesel, stamps etc at the end of the tax year i total it all up for the accountant, under the headings materials, stationery, fuel, etc and she does her thing, i think i may make her job easier as i know people that hand their accountant a pile of receipts. She charges us £250 for the tax return and is very good and fast, also full of good advice. Get a good accountant, we had one that advised us to set up as an limited company and we wasted loads of money, thats something we should have done in a few years time. We get our business cards at vista print. We shall start the new tax year by using one of our personal accounts strictly for the business which should make life easier and we will be able to see what kind of wage he is getting as at the moment its all bit of a blur and we only find out at the end of the tax year when we do our return. I did buy an accounting packaging, but couldn't work it out, so stick to my pen and paper much easier. Good luck and be prepared for all the hard work and arguments everytime he wants money for new tools etc, sometimes it feels like money is just going out and takes ages to come in.