As many as 75 per cent of Britain’s self-employed workforce use personal bank accounts for all business transactions, new research has revealed.
The study, commissioned by online accountants Intuit Quickbooks, surveyed the financial practices of over 5,000 self-employed workers and found only a quarter had opened designated business accounts for financial processes such as invoicing and expenses.
The findings revealed the negative impact on business growth in not having a separate bank accounts.
A fifth of survey respondents admitted that failing to effectively manage finances almost killed their business. This figure follows previous research that suggested small businesses with accurate and up-to-date financial information grew twice as fast as companies that were behind on their book-keeping.
By not separating business transactions from personal finances, the study found, UK freelancers and sole traders lose 15 days of paid work a year, spending two hours each week retrieving company expenses out of their personal banks accounts.
Commenting on the research, Dominic Allon, Intuit Europe’s vice president and managing director, warned that sole traders and freelancers leaving their finances as an “afterthought” run the risk of finances spiraling out of control.
“No self-employed worker can afford to spend significant time unpicking personal and business expenses when there are business critical activities to focus on – and get paid for.
“Financial management needs to be at the heart of any strategy, right from the start of any business endeavour, otherwise there is a real risk of failure,” Allon said in a statement.
In a recent article for Business Advice, Russell Smith from Russell Smith Chartered Accountants warned that while it may be tempting for sole traders to use a personal account for all business transactions, failing to provide HMRC with a clear distinction of dealings “may result in both inaccurate tax and business valuation”.
To shed light on the administrative responsibilities of new companies, KPMG’s head of small business accounting, Bivek Sharma, provided sole traders and freelancers with his essential tips for good financial house-keeping.
Going through bank statements daily, staying on top of all expenses and logging each sale immediately will mean “spending minutes on VAT returns rather than days”, Sharma said.
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