FinancesDoes a sole trader need a business bank account?

Does a sole trader need a business bank account?

Sole traders often wonder if they need a business bank account when launching their new business; in this article we will discuss whether a sole trader needs a special bank account, what kind of business bank accounts might be appropriate, and how you can make the cut if you choose to go down that road.

Do I need a business bank account?

Regardless of whether your business is your full-time job, a side hobby, or a start-up aiming for global dominance, you really ought to keep your cash flow organized. However, do you require a business bank account? It depends on how you run your company: sole traders do not legally need to have a separate business bank account but getting one can be very beneficial to your business and can simplify your accounting and taxes.

Can a personal bank account be used by a sole trader?

Sole traders may use their personal bank accounts but opening a business account has several advantages. It could make you seem more established by enabling you to use your company’s name on the invoices you send out or receive.

Watch out, though, as fees for self-employed company accounts are generally higher, ranging from £5 to £15 per month. Other advantages to opening a business bank account as a sole trader are:

Easy bookkeeping

If you have a separate company debit card, you can keep records of financial flow easily and quickly.

Identifying the income and expenses you make as a business is critical for monitoring your small business’s financial objectives and adhering to your business strategy.

In case you already have separate business and personal bank accounts, you can agree that filtering out the personal and business expenses is way easier this way.

Simplify your taxes

Taxation is already a hassle but keeping a distinctive sole trader bank account can make it easier.

Your tax payments will be much simpler to submit because you won’t have to sort through months or years of expenditures to determine which money was spent for business and which was for your pleasure.

Better protection

Separating your personal and business expenses can also assist you in protecting yourself.

If you ever go through an audit for your business by the IRS, you must be ready to produce paperwork for all of your company’s financial activities.

This process goes much more smoothly if you’re able to show them exactly how much money you’ve ended up spending on your business without having to filter out your personal expenses.

Access to business funding

If you want to get a business bank loan or other types of company financial support in the coming years, you’ll almost certainly need a business checking account.

Due to their desire to confirm your business’s working capital, most banks require you to hold a business bank account to be eligible for funding.

Your Company Will Look More Credible

Your business will look credible

Setting up a business bank account makes you look more authentic to clients who pay you. Consider purchasing something and submitting a cheque to John Smith versus sending a cheque to Smith Ltd. For a client, the business sounds more credible.

Can I Get A New Bank Account As A Sole Trader?

Yes, a sole trader can activate a personal or professional bank account to conduct business.

Despite the lack of sole trader small business bank account options focusing on sole traders, any small-scale business checking account is available for your case.

As a result, as a sole trader, you are eligible for all kinds of business bank accounts that you are qualified for.

Opening A Bank Account As A Sole Trader

There are some steps you need to follow if you wish to open a business bank account as a sole trader.

Register As A Business

The very first move to opening a business bank account is to file a company registered with the national, state, or municipal councils (depending on what applies to your case).

In the US, it is possible that you are not required to register as a sole trader, but this depends on the state you live in.

Choose The Best Business Checking Account

There are numerous types of business bank accounts, so you will need to go through all of them and choose the one that’s best for your new initiative.

Prepare All Your Paperwork

To start a business bank account, you must be able to verify your details and authenticate your business.

Depending on the state, country, or council you are part of, there are several documents you need to provide, such as the ones we have further below.

Submit An Application For The Account

Many commercial bank accounts make it possible for you to apply fully online.

Look for a bank with physical branch locations close to your home if you would like to apply on-site.

Details A Sole Trader Needs To Present When Applying For A Business Bank Account Online

To apply for a sole trader’s business bank account, you will usually need:

  • Your company’s name
  • Your company’s address, along with the state and territory in which it was founded and currently runs
  • Your personal ID or other forms of personal proof of identity
  • The business’s taxation unique identifier, such as an EIN or your SSN
  • The nature of your business
  • The month and year the company was founded

The Bottom Line

A business bank account can provide numerous benefits to your new business venture.

You will be able to secure funds for it effortlessly and establish banking relationships that will enable you to obtain a company credit card.

So, if you are ready to start running your business as a sole trader, apply for a business bank account today!

Written by

Mark Hodgson
Mark Hodgson
Mark Hodgson is one of our expert writers. Mark is our lead researcher and editor who writes our main guides and expert topic coverage. He’s passionate about helping entrepreneurs, startups and small businesses with practical advice delivered clearly. Mark’s worked for a number of business magazines and titles and has started two small businesses himself, so has first-hand experience in setting up, managing and growing a small business and shares his expertise with our readers.

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