The tried and tested financial products loved by successful businesses

Starting a business is hard. Sustaining a business is even harder. Sobering statistics show that 20% of businesses fail in year one, rising to 50% by year three. 

Thankfully - the nation’s entrepreneurial spirit remains strong. 2023 saw almost 40,000 new businesses start up. For context, that’s slightly more new businesses starting than there are residents in Fleet.

But with 5.51 million small businesses trading in the UK - what tools are at hand to help avoid failure? What proactive steps can you take in the early days to help keep you open for business through the years? 

To help answer these questions, we surveyed 522 successful small UK businesses, each with between 10 and 99 employees and turnovers of between £10 million and £499.99 million to find out what financial tools they have to hand, and what they use them for. 

A business bank account is key

Pretty much all of the small businesses we surveyed (97%) use a business bank account. A product that, on the face of it, isn’t too dissimilar to a personal bank account. In fact, you might be using your personal bank account for business finances. Some 43% of micro businesses do, according to Ipsos MORI research commissioned by Nationwide. 

It’s understandable - you can make and receive payments from a personal account, and you know where you are with them. But there’s so much more to a business bank account. You could be missing out on a ton of helpful features that not only make life easier but can also pave the way for more work opportunities. Here’s why:

Features - Many business accounts come with additional features that are tailored to addressing the pain points of businesses. Just under a third of the businesses we surveyed said the main reason they have a business account is to take advantage of a payroll processing feature. And a similar number said they used it to make tax returns simpler - many accounts either come with, or allow the integration of, accounting software. Both of these features simplify what can be time-consuming administrative tasks which carry a high risk of human error that may lead to fines from HMRC or disgruntled employees. 

Professionalism - If your business relies on payments from customers or clients - then they will know if you’re using a personal or business account. You might’ve noticed whenever you make a payment to someone, your bank will ask: “is this payment going to a business account?” Clients and customers take comfort in knowing you’re professional - it provides reassurance that you’re organised and are taking things seriously. If you’re sending out invoices with a personal bank account number and sort code, it risks sowing seeds of doubt. And some clients may simply refuse to take you up on your services, a quarter of our respondents told us their clients insisted they have one, so you could be losing out on work.

Limited company - If you’re a sole trader or self-employed, you can legally use a personal account. So while you may miss out on some of the benefits noted above, you won’t get into trouble. If you’re a limited company however, you don’t have a choice. A limited company is by definition a separate legal entity - put simply, it’s not you or another individual - and so its finances must be kept entirely separate from your own.

Let cash flow with invoice finance 

Cash flow is a term you’ll quickly get used to if you start a business. It’s crucial that cash flows - if it doesn’t, you might not be able to pay bills, suppliers or employees. And if you can’t pay those things, it sadly won’t take long before you have to start answering serious questions about the future of your business.

Businesses told us that delayed payments are one of the biggest impacts to cash flow. As a business owner, you need to know when money is coming in so you can schedule bills and pay staff. But chasing payments is time consuming and if you’re chasing, it likely means it’s already late.

That's why almost a fifth of the businesses we spoke to use invoice finance, or invoice factoring - citing it as a real business life saver.

There are different types of options available - but in essence if you take this type of product out you get paid for your invoices from a lender before they’re settled by your customers. You can usually pick which invoice(s) you want paying, and depending on which version you take out you can either continue to chase your customer yourself or pass the whole lot over to the lender. Then, when the customer pays, the lender gets their money back for a fee.

Mitigate risk with business insurance

Surprise financial shocks are never welcome - and weather related incidents or global events such as a pandemic are difficult to prepare for just using everyday cash flow. But just like there’s insurance available for unexpected events in your personal life, the same applies for businesses with business insurance. This is an umbrella term for a range of different policies which exist to protect your business.

100% of the businesses we spoke to told us they use some form of business insurance. The most common types of policies used were public liability, commercial property, commercial vehicle, product liability and employers' liability. The policies that are relevant to your business might be different, but as all of our respondents used some from of insurance, don't be the odd one out and expose your business to risk unnecessarily.

Break up large payments with asset finance 

Investing in equipment, tech and infrastructure can be expensive - the purchase might not always fall at the most convenient time either. And depending on your industry, you might find you’re constantly needing to upgrade as technology evolves. That’s where asset finance can help, used by 17% of the businesses we spoke to.

With asset finance, a lender provides the funds for the asset you need - and you pay back in instalments. With interest, it can be more expensive, but you retain a level of flexibility at the end of the agreement, meaning you can upgrade without needing to rebuy. 

Business savings can unlock more potential 

Managing finances takes a range of different skills and tools - you’ll need resilience, contingency plans and ideally the business equivalent of a rainy day fund.

It might surprise you to hear that 91% of the small businesses we surveyed said they have a business savings account, with 41% saying they use it to actively manage their business finances. In fact, from our survey, a business savings account was the finance option most used by these successful small businesses.

In the early days - the idea of having business savings might seem like an impossible feat. But you don’t need to deposit thousands to see a benefit. 

For example - it’s likely that each month you’ll be setting aside some money for tax that you won’t pay until the end of the financial year. If you keep this in a standard business account then it’s unlikely you’ll make much interest on it. But if you deposit it into a business savings account you could earn up to 4.33% interest on an instant access or 5.2% on a fixed term account. Instant access means you can get your money out when you need it, so you don’t need to worry about being penalised for accessing the cash if an unexpected bill crops up. 

You might also have other bills throughout the year that you only need to pay intermittently - the funds for which could be making interest when it’s not being used.

Loans and credit cards can ease pressures

A fifth of our survey respondents all said they use, or have used, business loans and business credit cards to help manage their business finances.

Credit can be intimidating. You might instinctively resist it for all sorts of reasons - maybe you don’t like the idea of having any debt or you’ve been wary of credit in your personal banking. But many of these credit tools, when used sensibly, can really help out. Especially in those early days when work is intermittent, payments are delayed, equipment is pricey and unexpected bills threaten to pull down the shutters. 

It can also be difficult to know where to start, but price comparison sites such as ours can help with some of the legwork. In fact, 91% of the respondents to our survey said they use price comparison sites when looking for business products like business loans, invoice finance and business credit cards.

You’ll know what’s right for you. But if you are considering finance options to help support your journey, then getting your business credit score up is a must. You can do this by showing you are a responsible borrower by repaying what you owe on time. Even of the successful businesses we surveyed, 3 in 10 said they were turned down for credit such as loans and credit cards. Accessing finance is notoriously difficult for small businesses, so the more you can do to improve your credit score and build up a credit history, the easier it is to access these tools.