The beep of a successful credit card tap. The flash of an email notification about an incoming e-transfer. That satisfying mouse click as you send off another invoice.
It can be pretty exciting when your small business starts to take off. At the same time, the number of transactions coming into and out of your company goes up. Soon enough, your thoughts may turn toward exploring lending options to help optimize your cash flow.
And so you find that, in the flurry of your business’ upswing, your banking’s become a little more complicated to manage – especially if your transactions are still flowing through your personal bank account.
Here, two experts from our GTA banking centre locations in Markham and Mississauga give an overview of when, why, and what small business owners should be thinking about when it comes to opening a business account to separate their business and personal banking.
In this article:
- Four reasons to separate your personal and business banking
- How to choose the right business bank account
- Why you should have your personal and business accounts at the same bank
- How the right banking partner can help
- Related resources
Why a small business owner might not already have a business bank account
CWB’s John Butler, AVP & Market Lead for Markham, says perceived cost is the main reason he observes that keeps small business owners from getting a business banking account. “Probably eight out of 10 times a small business owner believes they’re getting cost benefits from only having the personal account,” he says.
It’s a perception Cash Management Relationship Manager Juliana Cline sees too in her role at CWB’s Mississauga Banking Centre. And it’s one she says isn’t necessarily founded.
“The fear is that it’s extremely expensive to start out, but with CWB it’s $5 a month for a Business Current Account,” she says. “That gets you a bank account, online access, and then you might also decide to order a small sample of cheques for around $50. And with that your business banking is up and running.”
While cost tends to be the main source of hesitation, Butler says another reason is that when sales pick up, banking sometimes takes a back seat. “The business starts out very small, and maybe at first, it’s not even really a formal business, so you’re running things through your personal account. But then the business grows and morphs, you take on more clients, and your energy becomes more focused on running the business than what your optimal banking set up should look like,” he says.
“If you have customers and regular payments coming in and going out, you really do need to separate your business and your personal banking,” says Cline.
Butler agrees and adds that if you’re only occasionally selling the odd thing to supplement your day job, then you probably don’t need a business bank account. In contrast, if this is going to be a full-time operation and your primary source of income, you need to organize your banking to reflect that.
He expands on this point, advising that your banking set up should be part of your business planning and align with where you expect your business to go. For example, maybe right now you’re able to run it from your home, but as things get busier you may need to lease or rent space.
"Defining your goals and aspirations is critical. Start putting in place today for what you hope will be an eventuality tomorrow,” he says. “You need to plan for those circumstances and take steps now to organize your banking for the future.”
Butler also notes that applying to lease or rent is just one of the scenarios where a business owner will be asked to produce business financials – and that can get unnecessarily complicated when transactions are all going through a personal bank account. Below, he and Cline touch on a number of other reasons why it’s important to untangle your business from your personal banking.
1. Position yourself better for lending applications (personal and business)
“It’s incredibly more difficult to apply for a business loan when it’s complicated to interpret and understand your finances. That can potentially limit your lending options and who’s willing to work with you,” says Butler.
And it’s not just commercial lending where intermingling your accounts can create a hitch, explains Cline. Say you’re applying for a home mortgage. A common document you’ll be asked to produce is a Letter of Employment – but you won’t have one if you’re self-employed, and so the bank will ask to see your business’ financial statements as an alternative.
“If you’ve been running everything through your personal accounts it’s tough to pull all that data apart,” says Cline. “It can be particularly challenging for businesses that operate with cash or e-transfers to separate those from personal transactions. Challenges like this could be the difference between a bank wanting to do the mortgage with you or not.”
2. Simplify your bookkeeping and make tax time easier. “In general, it makes it a lot easier to keep track of things. And it should be no surprise that having personal and business transactions neatly separated makes tax time go much smoother,” says Butler. Adds Cline: “If you’re paying yourself from the business, you’ll also want a clean record of those funds going from your business account to your personal account for personal income tax purposes.”
3. Make your business look more professional. “You look more legitimate when you can issue a cheque with your business name on it and you’re taking deposits into a business account,” says Cline.
“Legitimacy is a big piece for the bank to feel confident in doing business with you. We need to clearly understand how and where you accept payment from your customers and how and where you pay for your expenses.”
It’s really to your benefit to make it easy for people to understand your business finances, adds Butler. “If someone is evaluating your business – like your banker, or a supplier who’s looking at extending you credit, or someone who’s interested in acquiring your business – they need a clear line of sight to your bottom line and cash flow. You don’t want people to have to decipher and make assumptions about your financials.
4. Get a clearer picture of how your business is doing. You want to keep a strong pulse on the health of your business – and that’s difficult to do if everything’s all combined in one account. “If you don’t have a good view on your cash flow, how can you gauge your performance against your metrics – or even properly set those metrics?” says Cline. She also notes that clean financial statements will better support your business and financial planning.
Now you know when it’s time to get a business banking account. So, how do you pick one? Butler and Cline boil it down to two key considerations: use and service.
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1. Define how you’re going to use it
Fees are a big factor for small business owners, and that’s why Cline suggests only getting what you need right now so you’re not paying for unnecessary services. If your business (and with it your banking needs) do end up growing, she says your bank can usually change the type of account for you – for example, switching from a CWB Small Business Current Account to a CWB Business Advantage AccountTM.
“If you’re small and just starting out, go simple and easy – something that gives you online access and a basic ability to make business transactions,” says Cline.
“I always ask what kind of transactions will go through the account. What expenses are going out? Are you paying anybody? Are you paying for materials? What’s coming in? If there’s not much activity, it doesn’t make sense to pay a bunch of fees. Let’s make sure we choose the right account for you.”
In addition to matching the account to your transaction volume, Butler explains you also need to consider the types of transactions you’ll be doing. “It goes to the nature of your business. Say, all your clients pay you by cheque. You’ll need to have a bank account that allows you to easily make deposits via cheque for a reasonable cost. Or maybe all your clients pay electronically. You’ll need to have account privileges that enable you to process and receive your funds that way.”
CWB Business Current Account
The perfect low-cost solution for businesses with fluctuating volumesLearn more
2. Be picky about the kind of service you want from your bank
Thinking about opening an account with a new bank? Butler recommends visiting the bank first to see what the environment’s like and what kind of customer experience you can expect.
“Maybe you discover there are 50 people lined up out the door. How convenient is that going to be when you need to come into the branch for something? And do you have a representative? Because maybe you can get an account there for $4 cheaper, but then good luck if you need to talk to someone or process a transaction in person.” He adds that if you’re thinking of opening a virtual-only account to also consider how quickly you can access help when you need it, and if you’re comfortable relying solely on a 1-800 number.
“I think if you’re a client you should really kick the tires on service,” says Butler. “This is where CWB is really well positioned. We have personalized service through our dedicated Relationship Managers. You get to deal with humans. And we go to our commercial clients rather than asking them to come to us.”
He suggests you should also ask what the bank is willing to do for your staff. For example, businesses who bank with CWB will have access to discounted banking and services for their employees even if it’s only a very small team. “Businesses can leverage this as a benefit for their recruitment and retention, which can be especially helpful in a tight labour market,” he says.
Shopping around for the best fit – account and bank – is important. And when you do land on a good match for your business banking, there are also benefits to having your personal banking with that same financial services partner.
1. Ease of banking
“It’s easier to deal with platforms, products, people and places that are familiar to you,” says Cline. “When you log into your personal online banking, you’ll generally get the same interface that you do as a small business client, and vice versa.”
Most banks also have the online ability to toggle between your business and personal accounts, which allows you to view your transactions more efficiently and easily transfer funds between accounts, says Butler. “It’s much more convenient than writing a cheque on an account at one bank and then depositing it in another, using two different banking systems – and also waiting for those funds to clear,” he says.
2. Relationship pricing
Your banking costs should be lower for virtue of the amount of business you do with the bank, says Cline. “If you’re starting out as a new business client but already have your personal accounts with us, we can generally make considerations for being a little more flexible on the services and allowances we give you.”
3. A stronger partnershipIn addition to pricing benefits, Butler says the more business you do with the bank, the more leverage and support you should receive.
"When you’re a full-service client – for example, you have your personal account, mortgage, line of credit, and business banking all at the same bank – it goes to reason that the bank should work harder for you than for someone who just has a chequing account,” he says.“And if you are finding your bank isn’t giving you any breaks, then you should probably consider switching banks.”
Not only should the bank pull out all the (reasonable) stops when you have multiple products and services with them, but you should also get more allies in your corner, says Cline. “Rather than just having one person to connect with, you have two or three that you’ve established a relationship with and can get a hold of quickly when you need to. You benefit from having a whole team who knows you, knows your business, and will go out of their way to help you in a jam,” she says.
Cline says the right banking partner can give you a page full of ideas and things to think about. They can help you brainstorm so you’re feeling confident and prepared when you’re ready to open a business bank account.
That’s why she advises having a pre-conversation with someone who specializes in small business banking, takes the time to understand your business, and can help you identify what you’re looking for.
“I’ll spend an hour with someone who doesn’t even bank with us because we’ll get connected at an event and they have questions about how business banking works,” says Cline. “I’m happy to do it. It’s ok to spend 10 minutes investigating bank accounts on your own, but resist the urge to spend a huge amount of time. You don’t need to become a banker. We’re here to help business owners, even if it means ironing out some ideas first and guiding them in the right direction. Whereas some of the bigger banks might not have time to talk to you, at CWB we do.”