Concise guide to choosing a business bank account

Once of the first things you will do when you set up a new business is to open a business bank account. The easy thing to do is to use your personal bankers to act for your new business, but this isn't necessarily the wisest move as there are significant differences between the services you will receive from the various high street banks. Here are some general tips to help you get the most out of your bank, and choose the best account for your business.

How to choose the best business bank account

1. If your business is incorporated (i.e. a limited company, or LLP), you must have a separate business bank account. For sole traders and even partnerships, it is optional, although we'd strongly recommend opening a separate business account in order to keep your personal and business finances separate.

2. To make the best decision, you should ideally compare several banks to see what types of deals they offer, particularly to start-ups.

For example, Barclays offer up to 2 years' free banking to startups (T&Cs apply) and also include some use of CREDITFOCUS - their award-winning credit control service, free business seminars and free i-sure business data backup.

Lloyds TSB offer 18 months free day-to-day banking, free Sage business planning software plus a variety of start-up support services and resources.

While NatWest have a complete start-up package that includes 2 years of free banking, 12 months free access to any Regus business lounge in the UK, a start-up course and a start-up hotline that you can call for advice.

3. Don't necessarily go with your personal bankers to look after your business needs, as they might fall short however good they have been to you as an individual.

4. Despite suffering from the backlash against bankers' bonuses, many start-ups will feel more comfortable opening an account with an established high street banking name.

5. Bank charges can vary significantly between banks. Although you may receive up to 2 years' genuinely free banking, you should find out what tariff you will be switched on to once the initial free period has expired. The effect of charges can be significant if you expect a large number of transactions to go through your account each month.

6. Although most business accounts offer virtually nothing in terms of interest currently (in 2011), some banks have bucked the trend and you may be able to earn some interest on your current account balance. Put your tax savings in a higher interest-bearing deposit account to make the most our of the limited interest available to business customers.

7. It goes without saying these days that you should expect your bank to offer online business banking as a matter of course. This is a massive time saver for small businesses, and you simply won't be able to do without it once you've tried it.

8. Try to find a bank which provides a dedicated small business account manager. Most high street banks offer a dedicated service, and it will help to be able to talk to someone who understands how real businesses work when you need assistance or advice.

9. Ask friends or fellow small business owners what kind of experience they have had with their banks. You simply can't beat a personal recommendation from someone you trust.

10. If it doesn't work out with your bank for whatever reason, you can always switch providers. Aside from a small amount of inconvenience, the switching process has improved greatly in recent years, so you're not tied to your current bank for life!

Some businesses will require regular contact with their bankers, so you should go with a team you feel you can build a good personal relationship with.

Business Valuation Guide - How to value a business

When it comes to selling a business, the most important question you need to ask is - how much is it worth? Unsurprisingly, there are no precise ways to value a private business. The seller will want to drive the price up, and potential buyers will want the opposite. Although there are relatively easy ways to value certain parts of the business - such as stock, fixed assets (land, machinery, equipment, etc.), there may well be a sizeable intangible element to the value of a business.

Intangible elements would include "Goodwill" - this could include trademarks, and the reputation of the company. Such things are notoriously difficult to value, and in many cases will come down to how keen a potential buyer is to acquire the business in question. When looking at the overall value of a business, there are a number of different valuation methods which are commonly used - from using earnings multiples, to calculating how much it would cost to create a similar business.

In this article, we look at some of the most commonly used valuation techniques, and how other factors may influence the value of a business at any given time.

Common Business Valuation Methods

EARNINGS MULTIPLES

Quite often, multiple of earnings are used as a business valuation method. This method would be suitable for companies with an established financial history. The Price/Earnings (P/E) Ratio represents the value of the business divided by its post tax profits. It may not be easy deciding what P/E ratio to use, some industries, such as high tech / IT ones will have a much higher P/E ratio than, say, an estate agency. The P/E Ratios used in the financial press should be reduced significantly when valuing a small business. Large businesses are generally more established and broader-based therefore have higher barriers to entry. Small businesses have a narrower focus and are often more reliant on a single individual, so are inherently more risky. The higher risk involved in buying a small business, means the P/E ratio will be lower than that commanded by a large business.

Quite often, business advisers will suggest a valuation of around 3 or 4 times the annual post-tax profit, but higher valuations are possible.

ENTRY COST

Quite simply, this is the predicted cost to set up a similar business to that being sold. This would include the cost of developing a customer base and reputation, recruiting and training staff, purchasing assets and developing products and services.

ASSET VALUATION

This method is more appropriate for established companies with a large amount of tangible assets (such as property companies). The valuation is made by calculating the net realisable value of all assets.

Assess a company's assets

Once you have found a business you are interested in, the first thing you should do is find out exactly what is for sale, or decide which parts of the business you are interested in buying. You may agree to purchase the whole business or just its assets, ie its equipment, stock and order book. If you only wish to buy the assets, you will need to determine whether the seller will sell them with or without compensation due to loss of tax benefits, for example from a share sale.

Whether you want to make an offer for the whole business or just its assets, there are several important things to check, including whether:

·         The business has full legal ownership of all key assets such as plant, equipment and property. Ask to see documentation that proves all equipment and stock you are purchasing has been fully paid for and is not purely leased by the business - for example, check computer software licenses.

·         It has warranties and guarantees for any major pieces of equipment included in the deal such as computers, photocopiers, vehicles, etc.

·         Any intellectual property is protected and registered. The Intellectual Property Office or a patent lawyer can help you check.

·         What supplier and key customer contracts involve. Make sure you understand what these legally require from the business.

You will then need to decide how much these assets are worth, although to value the business as a whole you will also need to look at documentation such as its profit and loss account.

The above list is not exhaustive. There may be other things you need to check depending on the business you are considering buying. It is sensible to take advice from professionals with experience of valuing businesses and their assets, such as accountants, lawyers, chartered surveyors, business transfer agents, business brokers and corporate financiers.

If it is registered with Companies House, you can also obtain copies of the company accounts, the annual return and the other key documents filed by your target business using the Companies House WebCHeck service. The documents can be downloaded from the Companies House website, some at a small fee, helping you assess the value of the business and its assets. 

Obtaining information on a business you are thinking of buying

Buying an established business is a good option for some aspiring entrepreneurs. Much of the groundwork for success may have already been done by the existing owners. Before making an offer there are some important things to investigate. Initially you may only have access to the business' sales memorandum. Sellers will usually ask you to sign a confidentiality undertaking or non-disclosure agreement before you can access sensitive or detailed information. They will usually also ask for details about you (via a CV) and evidence of your ability to fund a purchase.

After an offer is made and accepted, due diligence is carried out. This is where the buyer looks at the business in detail, including its finances, its employees, outstanding litigation, major contracts, IT and other technology. It may sound complex, but professionals such as accountants, solicitors, chartered surveyors, business transfer agents, business brokers and corporate financiers can help. You can also do some of the research yourself.