While your business may just be getting off the ground, it’s important to establish sound business practices from the get-go. Managing your finances in a business-like manner from the start can save you time and prevent headaches as your business grows. One way successful entrepreneurs do this is by opening a business bank account when your business launches.
Even for a sole proprietor who isn’t legally required to create a separate bank account for their business, creating it can still work wonders and give you that peace of mind knowing that your business records are always clean and accurate.
Here are five reasons why a business bank account provides a strong foundation to a business.
Legal requirement for incorporations
New corporations are legally required to have a new bank account established under their corporate name. Without a business bank account, corporations won’t be able to receive money from third parties and customers, as they won’t be able to make out a cheque or send payment to your new business.
When you create your business bank account, you will also need to include an estimate of the total share value for accounting purposes.
Separate personal from business
How much money have you made from your business? It’s important to track your income to reflect your business growth, to keep accurate books, and to make it easier to file your taxes when tax time rolls around.
Depositing business income into your personal bank account requires reviewing all deposits to track your business earnings each month, plus recording the figure separately from your personal finances.
In the case of a sole proprietor, your business would not be considered a separate legal entity so you may think that it is easier to make business transactions out of your personal account as there is no need to separate the two. However, it will take time to sift through your bank account to figure out your business income when filing your personal taxes as well as figure out your business’s expenses to claim. This will take away time that you can spend towards other parts of your business.
Then there’s the possibility that your personal bank account may not offer services best-suited to your business, such as options to pay vendors directly from your account. Opening a new business account can give you access to services and products created for businesses to make your life and business easier to manage.
Make expense tracking easier
Separating your personal account from your business account can also make it easier to track business expenses. If you make business payments from a personal account, you’ll have to review each monthly statement to identify which expenses are personal and which are business-related.
Opening a business bank account can also help save time by streamlining your business’s financial records and tax information. Finding deductions, for example, can be easier if you don’t have to search through every item in your personal banking statements. Any fees that come with a business bank account can be deducted as a business expense.
Show the world you’re a professional
Opening a business bank account can show the world that you are professional and that you’re serious about managing your business’s finances, such as using a business account cheque to pay for supplies or services.
When you transact business from a business account, it can assure clients that your venture is legitimate, rather than just a hobby. Managing your business finances professionally can help establish credibility for your brand when you’re starting out.
Provide clear records in case of audits
When you commingle your personal and business banking, it might prove difficult for you, your bookkeeper, or your accountant to extract required business financial information. It could also prove problematic if you face a tax audit.
If the Canada Revenue Agency (CRA) chooses to audit your business, and you don’t have a separate business bank account, they’ll have to review all of your personal banking information to find your business transactions. This could lead to additional questions and time-consuming complications as they investigate both your personal and financial money matters. It’s much easier for them (and you) to have to review your business accounts only.
Establish business credit
As your business grows, you may find yourself looking for a business credit card, business credit line, or a business loan. Having an established business bank account that has been operating satisfactorily may improve your chances of getting a business credit approval when the time comes, and your approval won’t necessarily rely on your personal credit rating only.
In the case of a business loan, you are going to need to set up a business bank account in order to get one, no matter what business type you choose to create your business as.
Your company is never too small for a business banking account and there are many good reasons to open one. Creating a business bank account can take time, but it only requires a small adjustment as you operate your business. Establish good business financial habits by keeping your personal and business finances separate right from the start, so as your business grows and your financial needs expand, it will make record-keeping, accounting, filing taxes, and applying for business credit as simple as possible.
Register or incorporate a business with Ownr, and get money back when you open an RBC business bank account within 60 days. Learn more about the RBC refund offer here.
Ready to start your business? Ownr has helped over 40,000+ entrepreneurs hit the ground running quickly—and affordably. If you have questions about how to register or incorporate your business, email us at [email protected]