8 Questions to Ask When Choosing the Best Business Bank Account for Your Franchise
When you’re just starting out, hunting for the best business bank account can seem mystifying. While it’s tempting to simply use your own current account for both personal and business transactions, as a reported 32 percent of small business owners do, this can be a confusing and stressful way to operate. Opening a business bank account offers a much more convenient way of operating. You’ll be able to meet with advisors to get tailored advice, as well as accessing other perks like preferential rates when borrowing money.
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However, not all business accounts were created as equal and many will offer extra perks like lower monthly fees, a large overdraft to help with cashflow and more. Luckily, we’ve got a wealth of experience in the world of franchising with every kind of business from café franchises to child care franchises, so we know just what a franchisee needs from their bank.
Here are the eight questions you need to ask when choosing the best business bank account.
Questions to ask
1. Does my bank have expertise in the franchise sector?
It’s a good idea to choose a bank that has significant experience in the franchising industry, as you’ll benefit from their specialist knowledge.
Mike Smith, from invoice finance platform Business Expert, explains that many banks will offer great terms on business accounts for those in the world of franchising.
“Businesses in certain sectors can now benefit from tailored accounts with particular sets of perks attached. These are certainly worth searching out, assuming that the accounts make financial sense.”
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In the UK for example, Lloyds Bank is an affiliate member of the British Franchise Association (BFA) and employs a team of trained franchise managers who provide support to franchisors and franchisees. HSBC UK also has had a franchise team for more than 25 years and regularly presents at seminars run by the BFA. Metro Bank Plc, too, has close relationships with many franchises, employing an entrepreneurial team with specialist knowledge of the sector and different franchise models.
2. Will I require an overdraft?
An overdraft facility can be useful if you ever have a problem with your cash flow due to a late invoice or unexpected business expense. It can also be a lifeline when you've invested a substantial sum of money into setting up a franchise and not yet established a strong brand presence in your territory. In other words, it will keep you afloat while your profits grow.
Different banks will have different charges for authorised and unauthorised overdrafts. However, you should remember that many overdrafts are “repayable on demand” and the facility may be withdrawn at any time (subject to your bank's terms and conditions).
3. Are there additional charges?
Unlike a personal current account, many business bank accounts charge users for a number of services. 40 percent of small business owners reportedly face charges on their accounts, which may take the form of small monthly or quarterly fees. However, many banks’ monthly charge allows you to do things like make foreign transactions for free, which wouldn’t be the case with a personal account.
Look for a bank that offers all of the services for the lowest monthly fee to minimise extra charges. Make sure that you’ll comfortably be able to reach the minimum monthly amount that must be paid into the account to avoid extra fees there, too.
4. How easy would it be to switch to a different bank?
63 percent of small business owners use the same bank for both their personal and business accounts, but not shopping around is a huge mistake. If you’ve previously set up a business account but would like to switch, or want to switch business transactions from a personal to business accounts, the current account switch service makes this simple.
All you’ll need to do is ask your previous bank to switch your old account over as part of this service and they’ll do the rest, provided you have fewer than 50 employees and an annual turnover under £6.5 million.
5. Where is my 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 with less time to run your business. If you regularly use cash, an online-only bank may not be the ideal bank for you, so make sure you’ve considered this.
6 - What are the interest rates for the bank’s business accounts?
When you're achieving a very high turnover and have excellent cash flow, try and find accounts with great interest rates to make your money go further. You may also find it beneficial to move some of your money into a high-interest bank account (which again, you should shop around to find).
7 - What are the Invoice Finance options?
Invoice Finance is when a financier buys any unpaid invoices in exchange for a fee. This can be an effective way to boost your short-term cash flow, but 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. This is when a financier buys about 75-95 percent 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 5-25 percent, excluding fees) will be paid to you.
8 – Have I explored all the options?
When setting up a franchise, it’s important to do your research and shop around so you find the best deal. Use price comparison websites to find the best business bank account for your needs.
Be sure to review this checklist throughout the process of selecting a business bank account to ensure you make the right decision for you and your business.
Opening a business bank account isn’t always straightforward, so here is some extra key information to guide you.
What will I use my business bank account for?
It is likely that you will use your account for transactions including:
- Receiving money from customers or clients
- Paying your salary
- Sending dividends to shareholders
- Setting up direct debits for utilities
- Paying monthly National Insurance and PAYE taxes
- Paying annual Corporation Tax
What information do I need to provide to set up a business bank account?
Personal ID document – your passport, driving licence or national ID card
- Proof of address – a utility, council tax or bank statement
- Address of your business premises
- Other contact details relating to your business
- Companies House registration number (if your business is a limited company or partnership)
- Details of your estimated annual revenue
- Details of your banking history and credit score
How long will it take to set up the account?
In order to grant you a business account, the bank needs to carry out the necessary checks to make sure that you are a trustworthy account holder. The time it takes to be approved will depend upon the checks that need to be carried out and how easily the information can be obtained. Each case is different, but it should take between one week and three months to open your account.
Can I open a business bank account online?
Most banks ask that identification and supporting documents are provided in person in order to reduce the risk of fraud, so it is unlikely that you’ll be able to open a business bank account online. Of course, you can carry out most of the process online, which should save you time.
If you want to acquire finance online, there are plenty of other funding options to choose from. Consider Cashplus, for example, a provider of prepaid MasterCards and current accounts.
Can I open a business bank account from another country?
Many banks are wary of opening accounts for people based abroad as it involves more paperwork and may expose them to fraud. Although it is not vital to become a UK resident to open a business account, you will probably find that the process is much easier if you do live in the UK when you apply. If this is not possible, you or another of the business’ leaders may have to travel to the UK to meet with the bank in person.
Alternatively, you could choose to open an international business account, but these usually incur large minimum deposits.
Now you’re armed with all the knowledge you need to open your very own business account, why not check out another one of our guides to starting out in the franchising world? Or, if you’re ready to start your own business venture, check out our directory of excellent franchise opportunities right here.
Sophie Cole, Point Franchise ©
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