So, this is a topic that almost always comes up during an initial consultation with a newly founded business; aside from our incorporated peeps out there! There are definite pros and cons to both sides of the coin.
You can run a sole proprietorship, or in some cases a partnership, with a personal bank account or elect to open a small business account. A business account will require you to have an active business number. Business numbers are most commonly secured when you register your business name with Registry of Joint Stocks (at least, that’s the way we do it in NS!).
People, AKA our kicka$$ entrepreneurs out there, have honed in on the fact that when you add business in front of ANYTHING, the price increases and banking fees are no exception. Banks today are in fact businesses and run as such, charging fees and interest for their services provided. Simply looking at pricing, no matter which Canadian bank you choose, a personal account will almost always be cheaper than a business account. Cheaper, however, does not always mean best!
To keep things simple, I am going to break out a couple of the pros and cons of each account below to provide some insight into which direction may be the best suited for you
Personal Bank Account
• Cost less
• Most offer free features, such as free EFT transfers
• Can open an account with usually only two pieces of ID
• Most individuals, if not all, already have one or more open active accounts
• Limitations to the type of transactions in regards to business taxes
(Usually can pay personal taxes, however, cannot pay business taxes such as GST directly through online banking)
• Cheques are required to be made out to your name personally, instead of company name if one exists in order to be deposited
Business Bank Account
• Will handle a number of business tax transactions such as payroll, GST, and workers compensation payments
• All deposits can be made out in the company name, and deposited directly into account
• If audited, you would be turning over an official business account, instead of a personal banking account
• Service fees are usually higher
• Opening a business account requires a bit more documentation then opening a personal account
These were just a couple points on the main differences between the two types of accounts that I stress to my clients when deciding on which way to handle your banking needs.
I am a huge advocate of securing a business account. However for my newbies out there, who haven’t quite registered a business name at the moment or secured a business number from the CRA, should have at the very least a secure and separate personal account to be used strictly for business activities.
Personal is personal, and business is business. The two activities should not be mixed together, when we can avoid it. Especially starting out new, this separation allows for a nice clean picture of the business actives, as many do not immediately hire admin help or a bookkeeper.
Also if you are audited by the CRA, you wouldn’t be turning in a messy statement that has to be annotated to death, for an auditor to follow! I mean come on… the less time the CRA has to spend looking at your info, the better right. Let’s let them go pick on someone else, shall we?