What You Need to Know About Business Bank Accounts

A personal bank account is used for day-to-day transactions. A business bank account allows you to make the same transactions as a personal account (deposits, withdrawals, transfers, use your line of credit, etc.) but is associated with the business. You can also add additional signatories to your business account, which is helpful if there are multiple people handling daily transactions and accounting for your business. 

Although a business account functions the same way as a personal account, business accounts are built to serve the needs of business owners. This means they have different fees, limitations, balance requirements and other features that make them unique.

The fees for opening and managing a business bank account are slightly higher than those of a personal account because of the added functionalities. Business banking fees also cover additional services customized to your business's needs and allow business owners to apply for credit or debit cards.

The main benefit of a business account is that it offers a secure place to hold and manage the money that moves through your business. There are some important reasons to keep your personal and business accounts separate as a business owner.

Simplifies your taxes: Although combining your business and personal funds into one chequing account may seem easier, it can put you in a tough spot come tax time when you need to figure out your income and expenses. You can save time by streamlining your business' financial records and tax information, and a separate business account helps you get your taxes done accurately while taking advantage of important business tax deductions.

Protects your personal liability: If your business is registered as a limited liability company (LLC) or a corporation, you limit your personal liability. This means your personal assets are protected and remain separate from those of the business. Mixing your personal and business finances makes it possible for lenders, insurance providers and the law to pursue your personal finances in addition to those of the business.

Gives you credibility: When building trust with current and future clients, it is important to treat your business like a business — not like a hobby or an extension of your personal life. When you process transactions from a business account, clients or vendors are more inclined to trust any cheques or payments from that account. Managing your business’ finances professionally can help verify the legitimacy of your business and establish credibility for your brand.

Monitor business progress or performance: Keeping separate finances gives you a clearer picture of your business' performance. You can easily see your expenses and revenues, which can help guide your plans to improve and grow your business.

Builds a business banking relationship: Building a business banking relationship with a financial institution can help you obtain bank financing to purchase equipment, expand your business or get your foot in the door for business credit cards and business loans.

Many financial institutions that offer personal bank accounts also offer business banking services. However, reviewing the specific features of a business bank account is always a good idea before you sign up. Here are some things to consider when deciding on a business account.

Low fees

Most bank accounts come with several fees, including monthly maintenance, overdraft, and wire transfer fees. These fees can seem unnecessary to most customers, but they are used to help the financial service provider pay for its branch locations, customer support, and other services you enjoy.

When comparing accounts, ask for a complete fee schedule from each of the financial service providers you are considering, and compare the fees carefully based on your needs. For example, a business with overseas customers may want to ensure that additional fees are not incurred for currency conversion.

Minimum balance requirements

Most business chequing accounts come with a minimum opening deposit requirement and may require you to maintain a minimum balance every month. Although many are relatively low, it is essential to consider the potential minimum balance you will be required to keep in your account to avoid costly fees and penalties. Maintaining a certain balance may be unrealistic if your chequing account is used primarily for cash flow. Also, if your business’ finances change drastically or unpredictably each month, look for financial service providers that either don't charge fees or have low minimum balance requirements.

Interest rates

If you plan on opening a business savings account, you might want to consider a high-yield savings account. This will allow you to earn a little money as your savings grow. While higher interest rate accounts are always better, it shouldn't be a top priority. Opting for an account with a higher interest rate can also come with higher monthly fees that cancel out any earnings you might make.

Integration

Accessing the right integrations will help you streamline your business’ finances. Before signing up for a bank account, find out what the financial service provider’s capabilities are and if their solutions sync with your current business tools like your accounting software. For instance, you might use QuickBooks to send invoices and track expenses. So, you will want to look for a bank account that integrates with the features you use daily.

Security

You want a financial service provider that has robust security, especially if you plan to use online banking. Ask the financial institution about their software, their security measures, and how they handle fraud. One of the best ways to protect your account from fraudulent activity is through multifactor authentication. You want a financial service provider that delivers multiple levels of authentication to keep you protected.

Physical branch locations and online services

While you can get all your banking done from the comfort of your home, it is also important to consider your financial service provider’s physical location, especially if you are just starting your business, or if you will need to visit a branch every day to change or make deposits. Access to a physical branch can be beneficial, especially when learning how to manage your company's money. You can work one-on-one with an advisor in person, and it's much more convenient to have deposit options.

While you can start the process of opening a business bank account online, you may be required to come into a branch to show physical copies of your business documents. As such, it's a good idea to contact your financial service provider ahead of time to find out what to bring. The documents you will need may include the following.:

For sole proprietorships:

• Business registration or license

• Trade name (if applicable)

Partnerships and limited partnerships:

• Partnership registration

• Partnership agreement if provincial law doesn't require registration

• Trade name registration or master business license if operating under a registered trade name (if applicable)