How to Choose the Right Business Bank Account

01/04/2018 08:00 | Start a business

Choosing the best business account for your franchise

Opening a new franchise or considering switching your bank account? Here are our top tips on how to choose the right business bank account before setting up a franchise.

1 - Does your bank have expertise in the franchise sector?

Its a good idea to choose a bank that has significant experience in the franchise sector. For example, Lloyds Bank is an affiliate member of the bfa and employs a team of trained franchise managers who provide support to franchisors and franchisees.

Many other high street banks have teams with specialist experience of lending to franchises of different sectors and sizes, too. For example, HSBC UK has had a franchise team for more than 25 years and regularly presents at seminars run by the bfa. Metro Bank Plc also has close relationships with many franchises, employing an entrepreneurial team with specialist knowledge of the sector and different franchise models.

2 - Will you require an overdraft?

An overdraft facility can be useful when you have a problem with your cash flow due to a late invoice or an unexpected significant business expense. It can also be a lifeline when you've had to invest a substantial sum of money into setting up a franchise and have yet to establish a strong brand presence in your territory.

Different banks will have different charges for authorised and unauthorised overdrafts - but remember that any overdraft is repayable on demand and may be withdrawn subject to your bank's terms and conditions.

3 - Check all the other charges

Remember that you'll probably need to pay a small fee every time you make a transfer or deposit cash into your business bank account, unlike a personal current account. Many business accounts will also involve monthly or quarterly fees, although some banks may offer special deals with no charges for a set period when you open a new account. This can last anywhere from 6 to 18 months, which could help you save quite a bit, although remember that many businesses are not yet profitable after the first 18 months. Once the charges take effect, the cost could be significant if you make a very high volume of transactions, especially if these involve currency conversions.

Sometimes it may be easier to choose a bank account that sets the same fee for every transaction, as this could help you estimate how much the charges will be each month, so you don't get any unpleasant surprises. Fees will vary between different institutions, so you'll need to determine what's right for your business when assessing your franchise options.

4 - How easy is it to switch to another business account?

If you believe you could get a better deal from another bank, you can easily switch to a new account with another provider. It's a good idea to talk to your current bank to tell them you want to switch and why. This is because they might be willing to negotiate a better rate which could be as good as or better than the new account you have in mind. If this isn't possible, you should be able to move all your payments seamlessly to your new account, with the same overdraft limit.

5 - Wheres the nearest branch?

If you'll need to make regular visits to your bank to deposit cash, consider the distance between the nearest branch and your business address. The further away it is, the more time (and potentially money) you'll spend on travelling to and from the branch, which will leave you less time to run your business.

6 - What are the interest rates for the banks business savings accounts?

When you're achieving a very high turnover and have excellent cash flow, it's a good idea to put some of this money into savings so it can earn interest. You'll want a savings account that offers the highest interest rate for the long-term (i.e. not just for the first year), ideally with the same bank, so it's easier to keep track of what money you're moving around. However, bear in mind that with the Bank of England base rate at a modest 0.5%, interest rates on savings accounts are still very poor, so youre unlikely to earn much for the time being.

7 - What are the Invoice Finance options?

Invoice Finance is when a financier buys your unpaid invoices in exchange for a fee. This can be an effective way to boost your short-term cash flow, although a drawback is that the extra charges will cut into your profit margins and increase your overall franchise cost. Furthermore, invoice financiers usually buy invoices from B2B companies, so if you're running a franchise in the B2C sector, this may not be an option for you.

One popular type of invoice financing is factoring, which is when a financier buys about 75 to 95% of the value of your invoice in exchange for a fee. The financier will be responsible for collecting the full amount from the customer, after which the remaining balance (typically 5 to 25%, excluding fees) will be paid for you. Another type is invoice trading, in which companies choose which invoices to sell to financiers, on a peer-to-peer level. This could be useful if your clients have very different invoice terms (i.e. payment terms ranging from 21 to 90 days).

8 Dont forget to shop around

When setting up a franchise, its important to do your research and shop around so you can find the best deal. Whether youre starting a business and opening a new account or looking for a more affordable business account to minimise your franchise cost, its a good idea to use price comparison websites so you can determine what's appropriate for your needs. Remember that in this day and age almost all business accounts will include online banking and mobile payments, so you can manage your money more flexibly and make fewer visits to the branch.

Hopefully, youll find all the above advice useful when youre considering different franchise options.

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