Do You Need a Business Bank Account?
Two Crucial Reasons a Business Bank Account Is a Must
Opening a business bank account is one of the first things you should do when starting a business.
Having a business bank account provides your new business with credibility (with both customers and potential creditors) which is especially important when you're starting a business. If some of your customers use cheques to pay your invoices it is much more professional in appearance to have them writing cheques to "Acme Corp" rather than to "John Smith", as does paying your business invoices with separate business cheques or a separate business credit card. If you want customers to be able to write cheques to your business name you need a business bank account.
Having a separate business account is also important for tax purposes. One of the easiest ways to attract attention from the Canada Revenue Agency (CRA) is to commingle business and personal expenses and bank accounts. Keeping a separate business bank account with all of your business-related financial transactions provides a clear trail of business revenue and expenses in case you are audited by the CRA.
While it is recommended to have a separate account for both sole proprietorships and incorporated businesses, it is particularly important for corporations. A corporation is treated as a separate entity and as such the personal assets of the owner(s) are sheltered from potential liability.
However, in certain cases (such as gross negligence by directors or owners of the company) the courts may disregard the "separate entity" concept of a corporation and hold the directors or shareholders of a company personally liable. This is known as "piercing the corporate veil", and one of the criteria which may be used to determine this is the degree of separation between the financial activities of the owner(s) and of the business. As such, a separate business bank account for an incorporated company is a must.
Cost of Business vs. Personal Accounts
The first thing you'll discover about business bank accounts is that they always cost more than personal bank accounts and typically pay less in interest on balances. However, there are some valid reasons for this (other than pure profiteering by the banks):
- A business bank account is an asset owned by the business and as such if the business is sold, the bank account is included in the sale (another reason why a separate bank account is an absolute must for corporations).
- Business accounts can have multiple signing authority - It is a common practice for businesses to have more than one person with signing authority on the account (for example other directors, shareholders, managers, treasurers, etc.) It is also typical for businesses to require dual signatures on some types of transactions. With a business account, you can also have different groups of signatories. For example, one group could be sole signatories (for trusted individuals) and another group could require dual signatures. Note that online business accounts also support "dual signature" authority.
Fortunately, bank fees are a deductible business expense. When looking for a business bank account take the time to shop around, because there is quite a variance in the fees attached to business accounts, depending on the number of monthly transactions, the account balance, etc. Estimate the number of transactions you are likely to make in a typical month and the lowest balance you are likely to have and compare this with the bank's fee schedule. Note that if your business does not need branch banking, an online business account can be less expensive.
A Good bank can be your business partner
The results of a 2013 Business Banking Gallup Poll revealed a high level of dissatisfaction among business owners with their banks (32% were “actively antagonistic” about their financial institution). Aside from fees, there are many other considerations when looking for a business bank, such as:
- The availability of loans and business lines of credit.
- Mobile banking options.
- The ability to interface accounts with business accounting software. Most accounting software packages have the ability to link directly to business bank accounts at some banking institutions.
- Proximity - If you are doing business locally you will likely want walk-in access to a branch within your community. Developing a strong relationship with your local banker can be of great benefit to your business - you are much more likely to be successful in obtaining small business financing, for example.