As soon as you decide to start your business you should set up a business bank account not only to track all your start up costs but also keep your personal and business finances separate.

I cannot tell you how many business owners struggle with trying to recall what they spent on when they started out. Many don’t realise that this information is needed when it comes time to prepare the first year’s accounts and tax returns.

In addition, it is rather difficult to claim these expenses towards reducing your tax bill. The best way to look at it is: If there is no evidence it doesn’t exist.

Businesses should have at least three bank accounts to manage business finances:

  • Current or Active Account
  • Current Account (for paying bills)
  • Savings Account

Current Account

A main current account where all income comes in. This is the bank account through which your clients pay you and cash is deposited. You should include these details on all invoices that you send out. This will save you going back and forth with your clients.

Bill-Paying Current Account

A second current account for paying bills. Having a bills account separate from the one in which money is received will help you keep an eye on where your money goes instead of wondering where it went. This is because you will become aware of what needs to be paid and when. Once you know how much you need every month, you can either create a standing order for this amount from the main current account, or manually transfer it. It is always best to pay your suppliers or have your direct debits coming out on the same day of the month e.g. the 1st or whichever day suits you. This will also save you from the stressing of juggling money throughout the month.

Savings Account

A savings account where you deposit money on a regular basis for the taxman. The best way is every time you have money coming in, aim to save at least 20%. This will also provide you a little cushion for emergencies. Whatever you do, always save something, even if you can’t make the 20%, say times when money is tight. I know 20% might look like its a lot, especially in the early days, but its always best to start as you mean to go on. Every habit takes time before it becomes second nature, so no matter how difficult it is to save especially with all the bills, just do it. It doesn’t mean you cannot use the savings to bail you out; the point is to build a strong a strong foundation for your business and financial future.

If your business is VAT registered, always ensure you save a portion of the VAT element of every invoice you raise and get paid for. This is in addition to the 20% mentioned above. This money belongs to the VAT man and not your business.

“How about money to live on”, I hear you ask?

Keep your personal finances away from the business. Don’t use your business debit card to pay for your grocery shopping or nights out. This will not only annoy your accountant, but also cost you more in terms of fees. Work with your accountant, and they will tell you the optimum level of money withdrawals you can make from your business. This is not to boss you around, but to help you keep the stress away in future. Set up a standing order or manually transfer money for your personal living expenses from the main business current account to your personal.


Read more articles about Budgets and Spending Plans or access our growing list of FREE resources.

You might be interested in reading this article: How To Manage Cashflow In Your Business and Stop Stressing About Money

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Looking for 1:1 support?

If you don’t have an accountant yet, I suggest you get one as soon as possible to help you get on top of tax planning. Unfortunately, some claims cannot be back-dated which results in unnecessarily high tax bills. An accountant is an investment in your business. Do get in touch if you need help finding an accountant, or if you would like to know how I can help you with a Financial Health Check.

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