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Whether it’s a sole trader, partnership or incorporated business, there are a variety of business bank account options provided by banks that are tailor-made for small business owners. The fees and charges associated with business bank accounts can be a bit of a trap, however. As with any business decision, it pays to shop around for a business bank account that is competitive to make sure your money stays with the business and not with the bank.
Choosing a business bank account (the hard part)
The type of business being run will largely determine what type of account you need. Another factor that will influence your choice is how much cash will be deposited into the account.
Farm business banking
Let’s consider the example of Mark Jadeon, a farmer. His business is at the mercy of the weather and foreign markets so his cash flow can be unpredictable. He chose an ANZ Farm Management Deposit Account, which charges him no fees for transactions and no account service fee. The interest rate is tiered, getting higher as the balance grows:
- $1,000 - $29,999 4.85% p.a.
- $30,000 - $49,999 5.25% p.a.
- $50,000 - $400,000 5.65% p.a.
The account is specifically set up as a risk management tool to allow farmers to save for leaner years, and allows a tax concession if deposits are left in the account for 12 months or more. In some cases, deposits made into this account will be deducted from Mark’s taxable income.
Retail business banking
What works for Mark may be neither suitable for, nor attractive to, other types of businesses. Alicia Dawson, for example, owns a small clothing shop. She makes regular domestic and international purchases and needs merchant facilities so customers can pay for goods with EFTPOS and credit cards. She decided to go with a Business Cheque Account with the National Australia Bank (NAB) and also applied for the NAB Business Card. (She was interested in NAB because the company offers a range of commercial cards and various other cards for business).
The cheque account on Alicia’s business account has a flat monthly fee of $10, but Alicia can make as many NAB ATM transactions as she likes for free. If she goes to a non-NAB ATM, though, she will be a slugged a hefty $2 fee each time. Also, the over-the-counter fees of 90 cents a transaction will probably deter Alicia from making personal visits to the bank.
Her credit card offers her a 35-day interest-free period, which means if she pays the balance in full before the due date, no interest will be charged. NAB also offers a 55-day interest free card, and another that has no interest-free period at all so she has numerous options.
While business cards are handy way to ensure cash flow, taking special note of their fees and charges is essential. Most attract interest rates of 17 to 19 percent, and annual fees of between $75 and $150 and beyond.
Opening a business bank account
Most banks give you the option of applying for an account online, so it is relatively simple to get started, and the application process is certainly made smoother if you have your documents in order before you apply.
You will find that the banks usually have at least five different types of banking accounts that have been created to cater to different types of businesses. Take some time to get familiar with what’s on offer so you match your business to the right the product. Once you have found an account to suit your needs, to open a business bank account, most banks will require you to provide an Australian Business Number (ABN). You can apply for an ABN online for free through the Australian Taxation Office's website.
Each bank has different requirements from businesses looking to set up a bank account. Most provide details on their websites of what they need from you. To speed up the process go in prepared, with your information in order and with a smile; patience will get you a long way. Banks can be very particular when it comes to business banking so try not to get frustrated by the process.