Banking Lessons for Sole Proprietors 

Running a small business is a real hustle. You do it all. The work, the admin, the bookkeeping, the customer service, and let’s not forget advertising! You have a sense of what you’re making, and it seems like decent income, but you keep coming up against unanticipated expenses or cash flow hurdles. Here’s a question for you:

Do you have a separate business bank account?

3 Reasons to set up a separate bank account for your business

Stop Stealing From Yourself!

When there’s cash in the bank, you spend it and when you are short on cash you pay your business expenses with your credit card. Are you tracking all the deductible portions of the credit card fees and interest payable for those business expenses charged to that card? Probably not, because it would take a lot of time to calculate. 

By co-mingling your personal and business activities in one bank account you could be creating extra financing expenses for business, robbing it of the capital it needs to purchase assets or take advantage of trade discounts.

What Was That Payment for Again?

After a busy month (ok, let’s admit it is sometimes an entire year), there are just so many payments from your bank account that you can’t remember which ones were business expenses and which ones were personal purchases. And was that a loan from your mother, or was that the refund from last year’s taxes?

As a business owner, you are almost certainly missing out on deductibles that will lower your taxable income and at the same time, increasing the risk that you will not be able to prove to the CRA which deposits were income, and which were non-taxable gifts or loans. 

Cut the noise. A separate business account will contain fewer transactions that will be more easily identifiable, and will allow you to observe your actual cash flows which improves your decision making ability.

I Forgot to Save For Income Taxes!

On average, sole proprietors are encouraged to set aside around 25% of their net income for annual income taxes (paid annually at tax time, or paid over course of the year through installments). During your first few years in business, you may not be able to predict how much income you will earn, and this can result in tax bills that you have not saved for. 

By setting up a separate bank account, you can set up a sub account and transfer money each month so that you avoid the income tax crunch.

Many banks now offer online bank account set ups. It may be the best 10 minutes you spend on your business this year.