How to choose a business bank account

It depends on how the business is set up. business.gov.au says a separate account is required for a partnership, a company or a trust. For a sole trader it is optional, though business.gov.au calls it a good idea.

Where it is optional, the choice is really about how much sorting the books will need. With one account for everything, every personal payment has to be picked out of the statements and marked before the business's own figures mean anything.

The earlier the account is opened, the fewer transactions have to be moved across, or picked out of a personal account, later.

An account used only for the business keeps its transactions apart from personal ones. Before looking at any account, list how money will move through the business:

• How customers will pay you. business.gov.au describes card payments through an EFTPOS terminal or online, direct debits set up through your bank or a provider, and online payments through your website.
• How you will pay others. business.gov.au says internet banking lets you make payments whenever you need to, see every transaction, and automate regular bills, which lowers the chance of errors.
• Whether you will bank cash. business.gov.au suggests banking cash regularly rather than storing large amounts.
• Who needs access, and whether some people should only view the account while others can make payments.
• Whether you want a second account to hold money aside. business.gov.au suggests putting money aside in a separate account so regular costs can be paid on time.

If you think the business may need short-term borrowing, note that too. business.gov.au describes an overdraft as a line of credit attached to a business bank account.

With that list in hand, ask each bank the same questions, so the answers can be set side by side:

• What does the account cost to run? business.gov.au notes that card and EFTPOS providers often charge service fees, and that a bank may charge for each transaction.
• How can statements and transaction data be downloaded, and in what formats?
• Can transactions be sent automatically to accounting software, if you use it?
• How far back can past statements be retrieved online?
• Can each user be given their own login and their own level of access, and can payments be set to need a second approval?
• What happens if online banking or card payments go down? business.gov.au points out that electronic payment systems depend on power and an internet connection.

No single account is right for every business. The answers matter only against what your business needs it to do.

Writing each bank's answers into one sheet shows the differences that matter to your business. The example compares two made-up accounts for a small trade business that takes card payments on the job and pays a handful of suppliers each week.

Read across the rows with the business's actual habits in mind:

• Fees: a flat monthly fee stays the same however busy the month is, while charges per transaction grow with the number of payments once any included transactions are used up. Count last month's transactions to see which structure fits, and record the fees on each statement as an expense whichever you choose.
• Card payments: if customers mostly pay by card, the terminal matters as much as the account. Ask whether card takings arrive in full with fees charged separately, or with the fees already taken out, because that changes how each deposit is recorded.
• Limits: a daily limit below your largest regular payment, such as a big supplier's monthly bill, can hold that payment up, so check the limit against your biggest payments.
• Software link: an automatic feed brings each transaction into the software without retyping, but every line still needs matching and reconciling. Downloaded files work too, as long as someone imports them on a set day.
• Extra accounts and users: a linked savings account makes it simple to hold money aside, and separate logins with a second approval keep payments under control as more people get involved.

In this example, Account 1 fits the trade business better, because it takes many card payments and wants a daily feed, even though Account 2 has no monthly fee. A business with few transactions and no need for a card terminal could read the same sheet the other way.

Each way of being paid lands in the account differently, and that shapes the bookkeeping behind it.

• Card payments: business.gov.au notes that card and EFTPOS providers often charge service fees. Where takings arrive as one deposit for a day's sales, match it to that day's sales total rather than to single sales.
• Direct debit: business.gov.au says the customer fills out a form authorising you to take payments from their bank. Match each collection to the invoice it pays, and follow up any that fail.
• Cash: bank it as one deposit for each day's or week's takings, and keep the till record that explains each deposit, so deposits and sales agree.
• Cheques: business.gov.au says they take about 3 business days to clear and can attract fees. A cheque recorded in the books on the last day of a month but banked in the next shows as a timing difference in that month's reconciliation.
• Buy now, pay later: business.gov.au says the provider pays you the full amount at the time of purchase, minus a fee. Record the sale at its full price and the fee as a cost.
• Online payment platforms: ask how and when the money reaches the bank. If the platform holds it first, give the platform its own account in the books and reconcile it like a bank account.

Requirements depend on the bank and the type of business. Our guide to separating business and personal finances lists the examples business.gov.au gives. Have them ready before you apply so the account can be open before the business starts trading through it.

1. Add the account to your chart of accounts as its own bank account, named so it can't be confused with any other.
2. Choose a start date and enter the balance shown on the bank's records at that date as the opening balance.
3. Record where the first money came from. A sole trader's or partner's own money paid in is recorded as their contribution, not as income. In a company, record it in the account your accountant advises.
4. Set up accounts for bank fees and for any interest the account earns, so each statement line has somewhere to go.
5. Update your invoices and quotes with the new account details. business.gov.au notes that an invoice tells customers how they can pay you.

If you add a second account or a card alongside the main account, each one needs its own place in the books.

• A savings or holding account: add it to the chart of accounts as a bank account in its own right and reconcile it to its own statements. Moving money into it is a transfer between two of the business's accounts, not an expense.
• Interest: ask whether the account, or a linked savings account, pays interest and how it is worked out. Record each interest payment shown on the statement as income.
• A business credit card: treat the card as an account of its own. Record each purchase from the card statement against the right expense, reconcile the card to its statement every month, and record each repayment from the bank as a transfer to the card, so the same cost isn't counted twice.
• More than one card holder: ask whether each person can have their own card and limit, and collect a receipt for every purchase they make.

Changing accounts usually needs a period of overlap, because customers and suppliers don't all update their details at once.

• Tell regular customers the new details in writing, and keep the old account open until payments stop arriving there.
• Move direct debits and automatic payments one by one, ticking each off a list.
• Record money moved between the old and new accounts as transfers, not as income or expenses.
• Reconcile the old account to its final statement before closing it, and keep that statement.

Until the move is complete, keep marking any personal transactions in a shared account as personal when you record them.

Reconcile each account to every statement. A bank reconciliation compares the account in your books with the bank's records and explains any difference, such as a payment still being processed or an entry made in error.

business.gov.au lists bank records among the records to keep, and says most business records need to be kept for 5 years. Online statement history may not reach back that far, so download each statement when it is issued and file it with the month's other records.

• Choosing on the monthly fee alone. The charges that matter are the ones your own transactions trigger, so add up the fees on the first full statement and check them against what you expected.
• Sharing one login. If several people use the same password, the bank's records can't show who made which payment. Give each person a login of their own, with only the access their job needs.
• Leaving the software link until later. Months of transactions then have to be imported or keyed in at once. Connect the feed, or set a day for downloads, in the account's first week.
• Letting personal spending creep in. Each personal item in a business account has to be found and recorded separately. Record any that slip through as personal, not as a business expense, and ask your accountant how to treat them.
• Skipping small statement lines. Every fee, charge and interest payment needs an entry, or the reconciliation won't agree with the bank.

Close an account only once nothing is still due to pass through it and its records are safely kept.

• After moving to a new account, close the old one once payments have stopped arriving and its final statement is reconciled, as set out above.
• When the business stops trading, keep the account open until the last customer payments have arrived and the last bills, loan repayments and fees have been paid.
• Before closing, download every statement you don't already hold. Closing the account doesn't shorten the time its records must be kept.
• Cancel direct debits and remove the account details from invoice templates, so nothing is sent to an account that no longer exists.
• In the books, record the final transfer out, reconcile the account to a nil balance and mark it inactive rather than deleting it, so its history stays in past reports.