Five reasons to have a separate business bank account

What starts as a side hustle can turn into real, taxable income faster than you realize. When it does, you need to make sure your personal and business finances don’t get tangled up in one account. Rebranding as a small business owner can be a smart move, and opening a business bank account is an easy first step. You should also consult with professional business, tax and legal advisors about how to structure your business's financial affairs.

Do I need a business bank account?

In most cases, yes. Personal deposit account agreements are generally written for personal use. Plus, unless you are operating as a sole proprietor or partnership of individuals without a registered business name, the Canada Revenue Agency requires a separate bank account. But beyond that, you could be missing out on the numerous benefits of separating your business expenses from your personal ones.

“Creating your first business bank account can be an important mental milestone, where your business goes from ‘fun side project’ to ‘real money-making venture,’” says Jodi Kovitz, managing director of Tangerine Business. “The first time you see a bank statement with your business name at the top can make it feel official, like ‘oh, this is happening.’”

Here are five reasons why it pays to have a separate business bank account:

1. Credibility with clients, vendors and lenders

Image matters when you’re building a small business. Clients want to know that they’re working with a business, not an individual. Generating invoices and getting paid in your business’s name, whether via e-transfer, credit card or the occasional cheque, can show clients that you’re the real deal. But beyond making your business look legit, a clean business account history is exactly what a lender or landlord wants to see when you’re asking for credit or signing a lease.

2. Less scrambling at tax time

Finding out you owe money at tax time and not being able to access the cash you need? That’s never a good feeling. With a separate business bank account, it is easier to organize your money to ensure that funds set aside for taxes stay set aside. That can help prevent last-minute scrambling or having to borrow from family, friends or the business to pay what you owe.

And the benefits extend beyond year-end tax season. While all business owners need to make sure they have sufficient funds to cover tax payments, keeping any money you collect for GST/HST separate can simplify remittances to the CRA throughout the year — and can help prevent you from accidentally spending it. It also creates a clean paper trail for legitimate business expenses, as well as for auditing purposes.

3. Cleaner records can make managing cash flow easier

A business bank account makes record keeping easier, and that’s something that you’ll appreciate every month, not just at tax time. By separating your business from your personal finances, you can see exactly what the business spent without playing detective with your own bank statement. And with clarity comes ease, especially when managing your cash flow. Having a clear picture of the timing of money in and money out lets you know what your business can actually afford from month to month.

4. You can see what you actually earned

Even if you've just opened your first Etsy store and only made three sales, it’s so much easier to track your cash flow once you separate your personal and business finances. No sifting through statements to sort your own expenses and earnings from those of your business when you have a business account. Everything is already in one place. You can see your earnings, profit and loss, and month-over-month growth at a glance. And that’s exactly what will help you decide whether to reinvest, raise your prices, or rethink your business plan.

5. Your business money can work while it waits

Too often, business cash just sits around, waiting for a job to do. Tax money? It’s waiting for a filing deadline. That project deposit you just got? It’s waiting for a start date. While that money may be earning little or no interest in a typical chequing account, with a Tangerine Business account, it earns interest while staying within reach. And the more cash you have in the account, the higher the interest you can potentially earn.

Bonus point: Added confidence

Turning a side hustle into a full-time business can be intimidating. But with the right tools, you can focus on growing your business, not untangling it. By putting your money to work for you, a business account can help you grow with confidence.

Business account FAQs

Do sole proprietors need a separate business bank account?

Not always. But separating your business money simplifies tax filing and record keeping.

Can I use a personal savings account as my business account?

Unlike a personal savings account, a business savings account is designed to hold business money and earn interest on it.

What happens to GST/HST if I keep everything in one account?

The GST/HST you collect is money you eventually have to remit to the CRA. Holding this money in your personal account risks spending it by accident.