Sole proprietorships and personal accounts

Personal accounts may stipulate that they can only be used for personal banking, not business banking. When you run a sole proprietorship in your own name, you are in something of a banking grey area. This is because, legally, you are your business and vice versa.

Generally, whether or not you can use your personal account for your business comes down to your bank’s discretion. As a rule of thumb, if you simply receive fairly low volumes of electronic payments (e.g. freelancing), you are fine to use a personal account.

If you want more business-oriented facilities, then you probably need a business bank account. For example, if you want to make cash deposits and/or deposit checks, you’ll probably be guided to a business bank account.

Also, if you want to accept significant levels of funds or pay significant expenses, you probably need a business account. However, if your turnover is at those kinds of levels, you should probably be looking at incorporation in any case.

Opening a business bank account

If you need a business account, you may be tempted to go straight for the one with the lowest monthly fee. While this is understandable, it can also be a significant mistake.

First of all, check that the business account offers all the features you need. Ideally, think about what you’ll need in the future too. You can open a new business account later if you need or want to. At the same time, it makes sense to avoid creating extra administration for yourself if you can.

Once you’re sure a business account has the features you need and want, check exactly what’s included in the monthly fee. Ideally, you want the monthly fee to cover the core features you expect to use regularly and little to nothing more. There is no point in paying a high monthly fee to get access to features you won’t use. Likewise, it’s counterproductive to pay a low monthly fee and then pay high transaction fees.

Finally, make sure you actually qualify for a business account. For example, check if there are any minimum turnover requirements. If you’re sure that you qualify for a business account, actually opening one is usually just a matter of completing the correct paperwork in the correct way. Just remember that opening a business bank account can take time. So get the ball rolling as quickly as possible.

Taking and making payments

Decide early on how you want to take and make payments. Technically your options are:

• Cash

• Cheques

• Cryptocurrency

• PAD/bank transfer

• eWallets

• Payment cards (e.g. Visa and Mastercard).

For most small businesses, payment cards are almost always the default option for both taking and making payments. There are several reasons for this:

• Relatively low cost

• High security

• High convenience

• Widely recognized and accepted

• High transparency

To clarify the last point, using a payment card automatically creates a record of the transaction. This can be useful for double-checking that your business bookkeeping is correct.

Taking payment with payment cards

If you want to take payment with payment cards, get set up with the necessary infrastructure.

If you’re taking payments in the real world, you need a physical card reader. All card readers can read debit cards and credit cards. Some may also be able to take mobile payments. If you’re operating purely online, you need a virtual terminal. Either way, you need a contract with a partner who can process these payments for you.

You may be able to start taking payments before you have your business bank account set up. However, your partner is only able to send the money to you once you have an account where you can receive it. This is another reason why you should prioritize getting a business bank account.

Making payments with payment cards

Regardless of what type of bank account you use, you’ll probably get a debit card with it. You may find it useful to get a business credit card as well. This can be helpful for managing your cash flow, especially in the early stages.

If you’re a sole proprietor, you might want to get a personal credit card you keep specifically for your business. Firstly, this can help to smooth over any cash-flow issues. Secondly, it helps to keep business transactions separate from personal transactions. This can be very useful when it comes to filing your taxes.

The basics of bookkeeping and accounting

Bookkeeping is simply the practice of keeping accurate records of your income and outgoings. Accounting is the practice of interpreting those records to understand what they mean for your business.

Bookkeeping for small businesses

Small businesses that only use electronic payments can often do most, if not all, of their bookkeeping automatically.

For example, if you take all of your payments through payment cards, you can connect your payment software directly to an accounting package (e.g. Xero, QuickBooks or Sage). The two systems then exchange transaction information and update your financial records as necessary.

Likewise, if you make your payments with payment cards, enter the data from the receipt straight into your accounting package. Often you can do this just by taking a photo of the receipt with your phone’s camera and having an app input the relevant data automatically.

It can be helpful to have a human bookkeeper double-check the accounts from time to time. This should take minimal work and can often be done by a freelancer.

Small businesses that take cash or cheques need to do some manual bookkeeping. It’s preferable to have this overseen by a qualified bookkeeper.

Accounting for small businesses

Accounting is the process of taking your transaction data and turning it into useful business intelligence. This is used to file taxes and may be required to produce mandatory financial statements (e.g. for corporations). It can also provide invaluable insights into a business’s strengths and areas for development.

It’s therefore highly advisable for all small businesses to check in regularly with a qualified accountant. Ideally, you should see your accountant at least once a quarter. At a minimum, get an accountant to help you create your annual financial filings.