A business account is a bank account for a small business. Like your personal bank account, these accounts allow companies to pay bills, purchase assets and inventory, and save for an emergency expense. Using this type of account will enable owners to separate their personal financial information from their company’s financial information.

To financially function efficiently, small businesses need the right fit of bank account to suit their needs. As a small business owner, you need to understand the ins and outs of business accounts to determine the right one for your company before signing with a financial institution.

So, where should you start when considering opening a business account?

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Types of Accounts

Below are a few examples of business bank accounts your company can open at the various financial institutions in Canada.

The banks across Canada offer different benefits for opening an account with their institution. Compare Canadian bank accounts and see what they have to provide your business.

Business Chequing Account

This chequing account is the most common type for businesses. It allows companies to track all cash transactions made by the company to help determine its profitability. The money stored within will be used for a business’ day-to-day operations. There are numerous types of chequing accounts within every bank. Therefore, it is essential to look into the finer details to ensure it fits your needs before signing up for one.

Business Savings Account

A savings account is an excellent option for your business if you have extra cash and are looking to accrue interest on your assets. This is where companies can store their funds that are not needed for day-to-day operations, earning interest on the amount held within.

Merchant Account

This type of account allows businesses to accept various types of payments from their customers. A merchant account will enable companies to process payment card transactions, such as debit and credit cards. This contract is between the acceptor (business owner) and a merchant acquiring bank (the financial institution that processes debit and credit card payments on behalf of the merchant).

Payroll Account

A payroll account is a bank account separate from a business’ other accounts. As the name suggests, it covers all payroll expenses, such as employee wages. This guide on opening a payroll account will walk you through the steps needed to register in this program.

Payments Associated with your Company’s Account

Accounts Payable

What are accounts payable if not a type of bank account? When a business buys raw materials used in the manufacturing of its products, or when stocking their retail inventory, they will often purchase these inventoriable assets on credit.

Sellers will generally provide buyers with credit to encourage buyers to acquire these assets. They will agree on terms when the buyer will actually pay the seller the cash to settle the accounts payable at a future date. The conditions of payment may allow payment 30 to 60 days from the date the transaction is enacted.

You can find accounts payable listed on the liability side of the business’ balance sheet. By the agreed-upon terms of payment, you will need funds in your bank to actually make a payment on these accounts payable. This cash flow requirement can be monitored with the right accounts payable software.

Accounts Receivable

What are accounts receivable if not a type of bank account? Just like accounts payable, accounts receivable is not a business bank account at all. Accounts receivable pertains to the amounts owed to your company by your customers.

Just like when your business buys something on credit, so too do clients buy your products on credit. The accounts receivable balance reflects the amounts owed to your business by your customers at the end of the accounting period.

Cost of Goods Sold Calculation

The cost of goods sold, or cogs, represents the overall costs incurred with the manufacturing and selling of a company’s goods within a specified accounting period. If you’re wondering how to calculate COGS, the accounting equation is as follows:

COGS = Starting Inventory + Purchases – Ending Inventory 

This calculated number represents the aggregated costs incurred to build and sell your company’s product. The cash stored in your business’ bank account is used to purchase your required materials, and when the products are sold, the sales receipts go back into your account. Having a proper business account will allow for this circular movement of cash.

Corporate Bank Accounts vs. Business Bank Accounts

The difference between a corporate bank account and a business one lies within the legal representation of the business holding the account. A corporate officer opens a bank account in the name of the corporation. In contrast, a business account can be opened by any person owning a separate business other than a corporate form.

A corporation is often created to obtain limited liability for legal purposes. This refers to the separation of the business’ assets and liabilities with the shareholders’ personal assets and liabilities. Therefore, in cases of a lawsuit, generally, a shareholder’s personal assets are separated from the corporation’s assets and thus are not subject to legal liability.

However, a business account of a small business owner could be considered a personal asset. In the instance of a lawsuit, their personal and business assets can both be subject to legal liability.

What you Need to Open a Business Account

Depending on the account you choose to open, you will need to provide the bank with specific documentation. As the account owner, you will be responsible for showing your company’s financial position. Overall, to open a business account, you typically need:

• Business Registration Papers: Banks need to ensure your business’ legitimacy before allowing you to open an account attached to it. Therefore, you will need to bring along your registration papers to illustrate the validity of the company.
• Personal Identification: Whoever is opening the account will require a valid government ID to do so. The name on the ID must also match the name attached to the company’s registration papers to illustrate the legal connection between the business and the authorized account holder.
• Proof of Residence: Like a personal bank contract, a business account has to be open by someone who is a resident of Canada.
• Employee Information for those Authorized to Access the Account by the Primary Holder: Many banks allow business accounts to have multiple users. If you would like to grant your employees access, you will need to provide their information to the bank too.

Before opening an account, check out Intuit’s guide on small business banking to ensure your company has all its needs covered.

Opening A Business Credit Card

Small businesses can open a credit card for their company with minimal hassle. Having a business credit card is an excellent way to separate your company’s expenses versus your personal expenses while growing your business.

Your small business must be a for-profit enterprise to qualify for a credit card. Even if you haven’t turned a profit yet, you can still be considered for a credit card by your bank. The most important part of the application is your personal credit score. As the owner of a business, you will need to provide your business revenue and personal income, as you are personally responsible for your business’ credit.

Connecting Accounts

Manage accounts in one place with the right accounting software. No matter what bank you choose to open your business account, QuickBooks accounting software allows an immediate connection between your financial institution and business in one interface.

Connect all of your accounts in one place with QuickBooks expense tracker. The software can automatically import income and expenses attached to your bank accounts to keep track of your small business’ finances with one easy-to-use dashboard.

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