Business Bank Account - Is It For Me?
/We get a lot of questions from practitioners who are eager to start their business and establish their own business bank account. Many people are told in school or by others that they need to do this. But do you? And what are the pro’s and con’s of doing so?
What is a business bank account?
A business bank account is a chequing account that is separate from your personal bank account and designed specifically for your business. All the big banks offer accounts that are tailored towards small businesses. For new practitioners starting out, your needs typically aren’t complex. If you’re working at another clinic, you’ll typically receive a payment for your split once or twice a month. Others (particularly those who negotiate properly and offer to process their own payments in exchange for a higher split) may have many more POS deposits from credit card transactions. In terms of expenses, these are usually pretty low volume and will be around half a dozen to a dozen for most new practitioners. Think: purchase of supplies, paying your work phone. Other expenses would be annual like professional dues, website fees, insurance payments, etc.
What are the pro’s of setting up a business bank account?
This is one of the areas where we hear the most myths. Let’s break down some of them. First, do you NEED to set up a separate business bank account? Nope, no way, not at all. Be wary of anyone who tells you need to since there’s no legal requirement to do so. Second, doesn’t having a business bank account make me look more professional? Maybe, but probably not. We hear this advice a lot because it’s given out to most small businesses, but it usually doesn’t apply to holistic healthcare practitioners who typically operate under their own name. If this is the case, you’ll be receiving and making payments under your personal name (e.g., Jane Doe or Dr. Jane Doe) anyways. So nobody on the other end can be impressed and wowed by your separate business bank account.
Third, people will say you need a separate business bank account to keep track of your business. This is true: you can clearly differentiate between your personal and your business’s transactions, and this can help you track your business’s profitability and helps at tax time. BUT even though this is the biggest advantage, it actually shouldn’t be. Why? You should be tracking your revenue and expenses separately anyways. Unlike many other small businesses that start off as side projects, holistic practitioners start their own business because they have to. This is your livelihood. Shouldn’t you be keeping track of your business anyways? If you had any other job, would you be okay if your employer randomly deposited different amounts in your bank account and never told you how much they were paying you? You wouldn’t settle for that, so you shouldn’t when you’re running your own business. This doesn’t have to be complicated and anyone who gives you a complex or expensive system is doing you a disservice.
Fourth, many people say they heard the Canada Revenue Agency (CRA) requires it. This just isn’t true. As discussed above, it does help make you sure you don’t mix your personal and business transactions together. But nothing replaces having a good tracking workbook in the first place. Because sometimes your personal and business expenses DO mix. What happens if you have a cell phone that you use for work and personal? Or if you use part of your home as a home office? Having a separate business bank account won’t solve those, only a good tracking workbook will. Plus, if you do get a full blown audit by the CRA, they’ll likely ask to see your personal bank account anyways.
Now that we have those myths out of the way, what are the real pro’s?
Simplifies record keeping – As discussed above, this is a key advantage. Just don’t use it as an excuse to not separately track your business’s revenue and expenses.
Incorporated professionals – If you have set up a professional corporation, then you need to have a separate business bank account because your corporation is legally distinct from you. There can be big tax consequences for mixing personal and business funds, so a separate business bank account is a must.
Some banks may require it – In some cases, a bank may require that you have a separate business bank account. For example, if you’re taking out a business loan or certain types of lines of credit, your bank may require one.
What about the cons?
The most obvious is the cost. Most business bank accounts will cost about $80 a year (though this qualifies as a business expense itself and is tax deductible). For someone just starting out, this can be meaningful.
It can also give you a false sense of comfort with your record keeping. Even though you have a separate business bank account, you still need to make sure you separately keep track of your business’s profitability.
What do I do next?
Decide for yourself whether you need a separate business bank account based on the above discussion. If you only have a handful of business transactions each month (which is the norm for most holistic practitioners just starting off), you probably don’t need one. If your transactions are more voluminous or complex, then consider getting one.
