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How to set up a sole trader business bank account

Setting up a bank account for your sole trader business is the easiest way to avoid confusion between personal and business spending. It also helps give your business credibility with customers and simplifies financial reporting and tax preparation. This guide covers why sole traders should open a business account, which type of account is best and how to set one up. 

What is a sole trader bank account?

A sole trader bank account is a bank account used specifically for tracking your business's income and expenses. Keeping your personal and business transactions separate can make managing your everyday cash flow easier. 

Are you required to have a business bank account as a sole trader?

Legally, sole traders aren't required to have a business bank account. As a sole trader, you're self-employed and can run your business through your personal bank account. However, having a separate bank account for business transactions has many accounting and tax advantages.

Why use a separate bank account for business?

There are several reasons why a separate bank account for business is a good idea — it simplifies accounting (saving you time) and may help you keep your records in order to stay compliant with sole trader tax and sole trader GST requirements. 

Separates personal and business finances 

Separating personal and business finances is why sole traders open a business bank account. Drawing a line between the two gives you a greater visibility of your day-to-day business finances and overall financial position

Efficiently track business income and expenses 

Efficiently tracking business income and expenses is the primary function of a business bank account. As a business owner, keeping a record of what cash is coming in and going out is essential. It helps you improve cash flow management, quickly identify tax-deductible business expenses and create accurate financial statements for better financial planning

Simplifies your tax returns 

Simplified tax returns are another benefit of opening a separate bank account for your business. If you don't separate your business and personal spending, you'll spend hours searching bank statements to identify and categorise each business transaction. That's all before you can start the process of submitting your income tax or GST refunds. You also run the risk of missing expenses and sole trader tax deductions. 

Linking your accounting software directly to your business bank account means transactional information is automatically shared from your bank to your accounting system. This relieves you of manually entering (and re-entering) the same details repeatedly, helping reduce errors and speed up accounting processes like monthly reconciliations. 

Sole trader bank account options

There are three main sole trader bank account options: business transaction, business savings and specialist business accounts.

Business transaction accounts

Business transaction accounts are for everyday business transactions. They are the accounts into which your customers or clients deposit payments and from which you pay your bills. 

Business savings accounts

Business savings accounts let you set aside money to cover your income tax and GST liabilities or for short-term cash reserves. Savings accounts earn interest, so you'll receive any accumulated interest each month. 

Business overdrafts

Business overdrafts can help you manage dips in cash flow and ensure you have funds available when needed. You can borrow a set amount and withdraw and repay the funds anytime. 

Specialist business accounts

Specialist business accounts are bank accounts designed for specific industries or business purposes. 

What is the best bank account type for a sole trader?

The best bank account type for a sole trader depends on your business size and industry. A transaction account may be all you need for the first year if you're a new sole trader. For more established sole traders, you may also open a business savings account alongside your everyday transaction account. 

If you do business with overseas clients, a foreign currency account will let you easily send and receive payments in foreign currencies. Then, some banks offer banking services and solutions that are specialised to your industry, such as retail, hospitality, manufacturing, agribusiness and more. Further, they may offer no-fees bank accounts for not-for-profit organisations.  

How to set up a business bank account as a sole trader

To set up a business bank account as a sole trader, we recommend following these steps:

Compare your options 

It's important to compare your options — not only the type of business bank account but which bank you choose to open that account with. Some banks offer accounts with unlimited electronic transactions but charge for assisted over-the-counter transactions.

Other accounts have a higher monthly fee but offer more inclusive services. Also, think ahead. Right now, you may only need a bank account. But as your business grows, you might need merchant services or finance lending, so choose a bank that offers those business solutions. 

Select the option that best suits your business needs

Select the option that best suits your business needs now and in the future. Most banks will let you set up a business account online, but you can also go into a physical branch to get help. 

Collect all required information 

You’ll want to collect all required information first. The specific documents and information you’ll need may vary by bank, but generally, most traditional banks require:

  • Business name and address

  • New Zealand Business Number (NZBN)

  • Industry type

  • Your ID

Sole trader bank account FAQs

Can I use my personal bank account for business banking?

As a sole trader, you can use your personal bank account for business banking purposes. However, there are many benefits of separating your personal and business finances, including easier cash flow management, simplified tax and GST returns and streamlined financial reporting. 

What are the differences between a business and personal bank account?

The main difference between a business and personal bank account is what they're used for. A business bank account is for business transactions like collecting sales revenue and paying suppliers and other business-related expenses. A personal bank account is for your personal income, such as your wages or salary, and expenses like food and entertainment. 

What are the disadvantages of opening a business bank account?

Opening a business bank account has some disadvantages. Most traditional banks charge monthly account and transaction fees, but these fees may be waived in certain circumstances. Some banks also have a minimum balance, opening deposit requirements and additional fees if you exceed monthly transaction limits. Check with your bank before setting up a business account so you know of any extra charges. 

Level up your finances with a sole trader business bank account

Once you've set up a business bank account, you can integrate MYOB's accounting software for sole traders. You can create and send invoices, manage your expenses, calculate your GST and view your cash flow in real-time — and in one place. 

Get started with MYOB today! 

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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