Choosing the Right Bank Account for Your Business

Oct 27, 2020
10 minute read

Starting a new business is a challenge, to say the least. This is your dream, and you want to see it come to life—but there are a lot of things to think about, even before opening the doors (virtually or brick and mortar). Incorporation or sole-proprietorship? How to file taxes? Procuring inventory and scheduling workflow? Insurance? Then there’s the basic question of a bank account.

With everything vying for your attention, it’s reasonable that opening a business bank account can fall by the wayside. Many important considerations might be left behind in the fray that is opening a new business, which can be costly. In this article, we’ll help you determine the best bank account to open for your particular business needs.

How to choose the right bank account for your new business

There are many different types of bank accounts for businesses, each offering their own perks and are catered towards a different type of business. Some are focused on point of sales (POS) systems, some are better for large purchases, and some are geared towards saving a lump of capital for later expansion. The right bank account can help you with that. It’s just a matter of which one.

Why open a business bank account?

You may be asking why do you need a separate business bank account in the first place? It might seem reasonable for entrepreneurs to stick with their tried, tested, and true personal chequing account. But this will cause more problems than it’s worth.

There are multiple reasons why it’s a good idea for entrepreneurs to open a separate business bank account apart from their personal accounts. Identifying what your business finance needs are will help identify which bank account will work best for you.

When shopping for a business bank account, don’t forget that some banks will offer incentives. These incentives can pay off! For example, RBC offers a cash back incentive for Ownr clients who open a business bank account.

Taxes and audits

Taxes are not fun. Audits are worse. Not being organized can feel overwhelming. A separate bank account can solve many of those problems. Keeping your financial records organized with a business bank account can help tease apart what are personal finances and what are business finances. It allows you to reconcile all cash flow in a clear way through a statement of account.

Filing business taxes are different than personal taxes, and one slip-up could bring the Canada Revenue Agency (CRA) knocking. Entrepreneurs can write-off a portion of their expenses, particularly for those who work from home; business expenses can easily overlap with personal expenses. It’s easy to accidentally claim an expense as a business when, in fact, it’s a personal expense. This small mistake can be costly and is easy to make if personal and business finances aren’t kept exclusive. A separate business bank account can help with taxes and audits.

Opening a separate business bank account can be your best friend. That way, when tax time comes around, or the unfortunate event of an audit, you or your accountant won’t have a headache trying to sort out grocery shopping from inventory purchasing.

You have a business name other than your own

If you’re registering your business with the CRA, and your business has a name other than your legal name, you’ll need a separate business bank account. This is generally the case with an incorporated business. If you’re running a sole proprietorship, registration can be under your own name. However, even if just for the ease of taxes and expenses, having a business name and opening a bank account under that name will mitigate these complications.

Having a bank account that is under a business name other than your own also lends credibility to all partners and clients. It sends a message that you’re a real entrepreneur and puts potential clients’ minds at ease.

Required for business loans, credit, and grant applications

Having a separate bank account builds business credit, and in order to get a business loan, you need credit. Many start-up entrepreneurs need initial capital to cover costs such as inventory, leasing space, licenses, and so forth. When applying for a loan, the bank will want to see that you do have equity. A separate bank account helps with this.

A separate bank account also lends not just credit, but credibility. Business loans and grant applications require a business plan, a part of which is a financial plan. A financial plan is an overview of projected profit and loss (P & L), including all expenses. Keeping a separate bank account is the easiest way to stay organized and demonstrate a clear financial business plan.

Most business grant applications require a thorough business plan as well, and a separate bank account keeps all finances organized.

Needed for point of sale and payment transactions

According to the Bank of Canada, the volume of cash transactions Canadians perform has significantly decreased in the past ten years in both volume and value. In one out of three transactions, Canadians are now paying with debit or credit cards, or online through stores like Shopify and Etsy.

A business bank account is needed for POS systems like Moneris. A personal chequing account doesn’t allow this. Many digital POS systems come with added security features and can be used on-the-go through mobile devices. The good news is that many of the banks providing business banking services offer customer support to help you set up your new POS system.

10 things to consider when choosing a business bank account

Considering all the factors when you’re a new entrepreneur can be overwhelming, and it’s important to think hard about what you and your business need. Once you determine what activities your business will conduct on a regular basis, you can address which type of bank account is best for you.

1. Determine what type of bank account you need

Right out of the gate, choosing between a chequing or savings account helps narrow your focus. Services provided for financial activities, daily and long-term, are the primary difference between a chequing and savings account.

Don’t forget the bank’s incentives!

Chequing account

A chequing account is ideal for daily operations such as sales, bill payments, suppliers and staff payments, or other overhead costs. Chequing accounts are low-interest and can be