Cash flow management is crucial for any business. You need to know exactly how much money is coming in and how much is going out. A business bank account can help. But it’s not just a good idea. If you’re registered as a partnership or a corporation, you’re required to have a separate bank account for company finances. If you’re a sole proprietor, it’s not required but still recommended to help you track your expenses.
Here’s the good news: Opening and maintaining a business bank account is easy. And it can be an exciting step in your journey as a business owner. We’ll walk you through it.
Why is a Business Bank Account Important?
A business bank account makes it easy to keep track of business expenses. And it can help you take full advantage of tax deductions and credits available to small business owners. It’s a simple, low-cost investment that comes with a plethora of perks and protections for businesses. Among them, it separates your business and personal transactions, which may help protect your personal assets.
Let’s take a look at some of the biggest benefits of a business bank account.
4 Benefits of Business Bank Accounts
1. They safeguard your funds
A business bank account keeps your personal finances separate from your business funds. This may help protect your personal liability. If your business can’t pay its debts, your personal assets won’t be at stake. On the flip side, if you have an unexpected personal financial crisis, it won’t affect your business’s credit score.
2. They can help you track expenses more efficiently
Separating your personal and business accounts allows you to track expenses, monitor spending, and create more realistic budgets for your business. A business bank account may help you avoid accidental overspending, and can make it easier to track your business purchases.
3. They promote better bookkeeping
Accounting is easier when you have a clear spending trail. A separate business bank account keeps your accounts and finances organized. So it’s easy to pull financial reports, prepare taxes, and generate accurate financial statements.
4. They can help you secure small business loans
When the time is right, you can open a business credit card attached to your business bank account. A business line of credit is a secure low-interest small business loan.
Business Bank Account Options
When it comes to opening a business account, you have a few options. Do your research and choose the account that makes the most sense for your business.
Let’s take a look at the three most common types of business accounts.
Business checking accounts
For most small businesses, a business checking account is a good place to start. Once you’ve started making sales and spending money on business expenses, consider opening a business checking account.
A business checking account generally allows you to do all the basic financial tasks you need to operate your business:
- Write and deposit checks.
- Transfer or receive money electronically.
- Withdraw or deposit money using a business debit card.
- Separate your business and personal checking accounts.
Many banks also offer mobile apps. View your balance, make transfers, pay bills and set up automatic bill pay, and monitor cash flow from anywhere.
As you research your options, look for a business checking account with a strong introductory offer and low fees. Some common checking account and service fees include:
- Maintenance fees: Banks may waive these fees if you meet minimum balance requirements each month. Many banks make these requirements easy to meet for small businesses.
- Transaction fees: Many banks issue small fees if you go over your monthly transaction allotment. Typically, the transaction allotment is high and difficult to exceed.
- Early termination fees: If you close your account early for any reason, such as closing your business or switching financial institutions, your bank may charge you.
- ATM fees: Most banks allow you to withdraw from in-network ATMs without fees. Many will charge a flat fee for withdrawing funds from another bank’s ATM.
- Deposit fees: Some banks have limits on how much you can deposit each day, week, or month.
When considering a business checking account, make sure you understand the fees, requirements, and restrictions. If you think you’ll have a high number of checking account transactions each month, look for an account with a high transaction limit. If you plan on withdrawing cash from an ATM frequently, make sure you have in-network ATMs in your area to avoid unnecessary fees.
Typically, online-only business checking accounts promise lower fees and more convenience, but there are a few drawbacks. Most don’t allow cash deposits, so it may not be a good fit for a business that handles cash transactions. Additionally, because the account is online-only, you won’t find a physical branch. If you like to bank face-to-face, online-only accounts may not be the right fit.
Another option to consider is a business interest checking account. Typically, interest-bearing accounts have the standard features of a regular checking account. But they allow you to earn an APY on your balance.
Meanwhile, some banks offer free small business checking accounts for new and small businesses. If you’re tight on funds, a free account might get your business on its feet. But beware: Free accounts may come with tighter restrictions on deposits and transactions. Think about what you need your business checking account to do before making any decisions based on price.
Once you’ve got your business checking account up and running, a business savings account is a smart second step. Use a savings account in conjunction with your checking account to separate your savings from your working capital.
A business savings account allows you to save a portion of your earned revenue and earn interest on the funds you set aside. Most business owners admit they don’t have enough cash in reserve to survive without revenue or cover an unexpected cost. A savings account can help mitigate financial hardship. In the event of an emergency, you won’t be left empty-handed.
Look for a high-yield savings account with low fees and high interest rates. Some savings accounts require a minimum deposit to open. Some come with monthly balance requirements that you’ll have to meet. Many come with small monthly maintenance fees that your bank may waive if you meet other requirements. Remember, the goal is to save money, not spend it on unnecessary banking fees.
It’s always a good idea to ensure your savings account is insured by the DIC.
Cash management accounts
When it comes to managing your business finances, banks aren’t your only option. There are plenty of financial institutions and cash management services from which to choose.
Cash management accounts (CMAs) are an all-in-one alternative to traditional bank accounts. CMAs are online accounts that provide services similar to checking, savings, and investment accounts. Typically, CMAs offer high interest rates for savings accounts, lower fees than traditional banks, and business lines of credit.
Business owners looking to simplify their finance management could benefit from a CMA. With some CMAs, you can conduct all your business transactions from a single account. You won’t have to use separate accounts for separate functions. But a CMA can have its drawbacks. Because CMAs are online-exclusive, you won’t get face-to-face customer service or the option to visit a physical branch. Additionally, banks and credit unions might offer higher interest rates on savings accounts.
How to Open a Business Bank Account
Once you’ve done your research and determined what you need from your business bank account, it’s time to open your account. Don’t worry. It’s easier than you might think. Here’s what you’ll need to do:
1. Gather the required documents and information
You’ll need a few things to get started, including your business number, your Social Insurance number, and your business licence.
2. Decide on the services you need
Will you need to send checks or handle cash? Do you prefer to visit a physical branch location and work with a teller? Or do you prefer the convenience of online banking? Determining what you need from your business bank account will help you determine which type of account is the right fit for you.
3. Review your banking options
Determine if a traditional checking account, online checking account, or CMA is the right fit for your business. Narrowing down the type of account you’re looking for will help you find the right service provider.
4. Choose a service provider
It’s important to choose the right bank for your business. Start by reaching out to the financial institutions you know and like. If you have a personal account in good standing, they might be inclined to offer you a better deal on a business account. Credit unions and other financial services providers tend to offer the same services and protections as traditional banks. So don’t rule them out. And as you shop around, keep a few things in mind:
- Special offers: Many banks offer enticing introductory offers, cash bonuses, and rewards for new accounts.
- Convenience: Look for financial institutions with physical locations in your area, plenty of ATMs, and mobile banking options. If you choose an online-only option, make sure you can contact help when you need it.
- Protection: You should feel confident that your business funds are in good hands. Look for banks that offer fund protection and insurance.
Finally, make sure your new account integrates seamlessly with your accounting software to streamline your bookkeeping and organize your expenses.
What information is required to open a business bank account?
Opening a bank account of any type requires some personal information, and a business bank account is no different. Here’s some of the common information you may need:
- The legal name of your business as it appears on documents filed with your province, territory or the CRA. If you’re a sole proprietor, you may need a “fictitious business name” certificate or a “doing business as” (DBA) [also called “operating as” (O/A)] certificate.
- Your Business Number (if you’re a partnership or a n LLC or corporation). The bank will use this tax identification number to ensure your business is legitimate.
- Your business address. This should be the same address you used to license your business.
- Basic contact information, including your company phone number, website, and email address.
- Your Social Insurance Number, especially if your business is a sole proprietorship.
- Your driver’s licence. Your bank will likely make a copy.
- Proof of identification, such as a passport or other form of photo identification.
Additionally, if your business is registered as a corporation, the bank may request copies of the following documents:
- A partnership agreement if your business is a partnership.
- Articles of incorporation if your business is a corporation.
- Your business licence.
The information required to open a bank account may vary, so you’ll want to confirm the necessary steps and information with your bank of choice. Having these documents primed and ready can streamline the application process and get your account opened faster.
How much do you need to open a business bank account?
You should open a business bank account as soon as you start making sales in your business and spending funds on business expenses. Some banks require a minimum deposit to open a checking or savings account. The starting amount varies by the financial institution but can be reasonable.
Some accounts may also require you to maintain a minimum daily balance. So be sure to review any terms regarding the minimum account balance as you consider your options.
Can I Open a Business Bank Account Online?
Many banks offer the ability to apply for an account online or in person. And there are pros and cons to each.
Opening a business bank account online may result in faster approval times, but you miss out on face-to-face support. If you have a lot of questions or you’re a new business owner, you might want to open your account in person to get the help you need. Your banker will likely give you their personal card for future communications. Typically, online-only accounts only offer a customer service phone number or live chat feature. You’ll likely speak with someone new each time you call or chat.
No matter how you choose to open your account, the process will go more smoothly if you have all the necessary information ready.
When Should You Open a Business Bank Account?
Effective money management is essential for any small business. And a business bank account is a good idea for all business owners.
If you’re a partnership or corporation, you may be required to have a business bank account. If you’re a sole proprietor, you may not be required to have a separate account. But you may open one to help you keep business and personal expenses separate and manage your funds more easily.
In general, it’s a good step to open a business bank account as soon as you start handling business transactions. But before you do, make sure you choose the right account type for your business. Do your research to find the right financial institution, and get all the necessary documentation in order. You’ll be banking like a pro in no time.