Do I Need a Business Bank Account if I’m Self-Employed?

A lot of people are turning down traditional jobs and switching to self-employment. You may be selling your services as a freelancer online. You may have successfully started a small business serving local customers. Over 2.7 million Canadians are self-employed, and this industry is only growing.

Even owning a moderately successful local enterprise means you should take online banking very seriously. What’s your preferred banking channel for business transactions? You may apply for a high-interest savings account to grow your income faster. But have you considered opening a business account? It can give your startup an extra layer of legitimacy and potentially attract more clients.

This article will discuss whether small business owners and other self-employed Canadians need a business account. Spoiler: It could set you apart from the competition. So, heads up, folks!

Do You Need a Separate Business Bank Account?

Is it the best time to open your first bank account as a self-employed person? You can go for a savings account or a separate business bank account. But is opening a business account mandatory for sole traders, freelancers, and small business owners?

Are you legally obliged to open a business account?

You need a business bank account if you operate under a business name. But if you work for a self-owned unincorporated enterprise, it’s called a sole proprietorship. That’s because, in a sole proprietorship, there's essentially no difference between the business owner and their unregistered corporation. So, there’s no need for a business account.

Just ensure you have proper plans for spending and saving to take your budding startup to new heights of financial success. Next, you’ll learn the benefits of separating business and personal finances.

Why Small Business Owners Need Business Bank Accounts?

We've established that the law views self-employed people, i.e., sole proprietors, as private individuals with no legal obligation to operate under a separate bank account. But even private individuals might need a business account one day. After all, why shouldn’t you eat from the fruits of online banking?

So, here are a few reasons why small business owners need business bank accounts:

Professional Look

Imagine how impressed clients would be seeing a bill paid to a business account. It declares that your modest startup is ambitious, giving it an elegant touch of professionalism. Clients would be more likely to trade with serious businesses that don’t limit themselves to personal bank accounts.

No Payment Hurdles

A personal account often has transaction or deposit limits. Some forms of payment won't be valid for your checking account. However, a dedicated business bank account will not have these hurdles so that you can receive payment from clients without an issue.

As discussed above, a business account makes your enterprise look more professional, encouraging clients to pay you faster – yet another reason to ditch personal accounts.

Easier Look Applications

Are you looking to borrow money to invest in a new business opportunity or franchising? A dedicated business bank account will be convenient if you want to apply for a loan without a hassle.

Online banks favor self-employed individuals with business accounts. So, you can successfully secure a loan with less paperwork and scrutiny. You need a business bank account to prove you are a trustworthy borrower.

Seamless Payments

The business expansion also entails hiring vendors, collaborators, teammates, and other entities. You need a system to organize all these payments and ensure you meet employees' expectations. There's no situation more embarrassing for small businesses than delayed or miscalculated salaries.

A business account will help you create a seamless payment system; you can pay workers from the same business checking account you use to receive client payments.

Taxes Made Easy

Every financial advisor would tell you that separating personal and business finances is the foundation of successful entrepreneurship. A separate business bank account makes bookkeeping easy and allows you to survive tax season comfortably. You can easily see all tax-deductible expenses with a separate bank account for your business.

Money Management

Opening a business bank account is the right way to manage your finances. As a self-employed individual in the over-competitive Canadian business landscape, you must keep an eye on every dollar coming and going out of the startup. That’s only possible with a dedicated business account with a reputable bank.

If you want to perform money management like a pro, try KOHO for businesses and be money-savvy.

Choosing the Right Online Banking Channel

Not all customers have the exact banking needs when opening a personal account. You may need to open a bank account with bad credit score. When shopping for the perfect banking partner for your small business, remember your needs. Business bank accounts have many features a customer would want in a personal bank account, too, for ease of use and accessibility.

For instance, you may need the following juicy perks in preferable business bank accounts:

Free Credit Score

Some establishments let you open a business bank account with a low or even bad credit score. So, check your free credit score with KOHO and stay current on your small business's fiscal health. Don’t let a low credit score come in between you and entrepreneurial success.

Monthly Fees

Find out if there is any monthly fee to keep your business bank account running. You can avoid it by keeping a sufficient balance in your account. What other fee this account will charge you? Ensure you are kept in the loop about the cost of running that business account.

Virtual Credit Card

Digital cards with no physical form are becoming the backbone of online banking. So, choose a service offering you a virtual credit card with minimum credit checks for online spending. You need to step up your online banking game to meet clients’ expectations in today’s fast-paced economy.

Budgeting Tools

Take your business finances to another level by choosing a business bank account with budget and planning tools. These features will help you manage and track the cash flow a dollar at a time. It’s a great way to keep the business vessel afloat and have enough balance to sustain your startup.

Overdraft Protection

If you want the bank to cover any overdrafts on your business checking account, choose a service that offers zero-interest overdraft protection coverage to meet unexpected emergencies quickly and easily. Ensure working with a bank that takes good care of the business finances of self-employed individuals.

Mobile Banking

Mobile banking features allow you to keep track of your business income all the time and are essential in a business bank account. Ensure you can deposit checks on the bank's mobile app, which integrates with your preferred bookkeeping software. That's how you stay on top of your business game.

Pro tip: Should I keep accounts at multiple banks? The answer is: It's a fantastic idea to diversify your portfolio, especially if you have numerous small businesses. Also, it’s vital to have separate bank accounts for your business; use something other than a personal account for business transactions.

How to Open a Business Bank Account?

Rest assured, opening a bank account is easy, especially if you have all the necessary paperwork. The same goes for business bank accounts; as a sole proprietor, you need to fulfill two requirements, and there will be a bank account in your name:

· Show your startup’s license or registration

· Tell the name of your business (if you happen to have one)

· Any additional documents listed on your bank’s website

As you do in personal finances, the bank will ask for some personal information and a small initial deposit. Your new business bank account will be up and running in hours.

Online Banking is the Way Forward

In today's tech-dependant world, you don't even have to visit the bank's physical location. Consider opening a business bank account online, even if you need to be more tech-savvy. Get KOHO, and you'll run your startup with superior financial tech. You can slowly build your credit with KOHO, honing your profile step by step. KOHO users see a credit score growth of 22 points only after three months!

That's why a dedicated business bank account is a must-do for self-employed Canadians who plan to become promising entrepreneurs. Ditch personal accounts when managing business expenses.

Wrapping Up

As a self-employed person, you don’t need to open a business bank account; you can make do with a personal bank account. But you may find yourself regretting this decision later. Be proactive regarding business finance, and set up a separate account for your startup.

It’ll help you itemize deductible expenses, raise future finances, and make taxes more bearable. Also, it’s generally good fiscal ethics to separate personal and business finances, tracking them separately. It’s the first step in the long road to financial health for your business. If you’re looking to step up your business game even further, check out these 5 financial strategies for freelancers in Canada.

If you still have any questions, contact KOHO, the FinTech company rooted in the belief that all self-employed Canadians deserve better financial solutions – an ideal no-fee spending and savings account.