Opening Business Checking Accounts
Once you've registered your business name, you can head to your financial institution of choice to open a business checking account (you don't want to order your business checks until you're sure of your name). First, however, identify which kind of account to open.
Most home-based businesses can get along fine with a conventional personal checking account, which often has cheaper fees than a business account. If you're a sole proprietor, the bank considers you and the business as the same financial entity anyway. The business accounts often have more detailed record keeping, but unless you need that level of detail, using a personal checking account should be more than adequate.
Open your business account as soon as it's practical after you start spending money on business expenses. Every legitimate expense is an investment on your part, so tally them up and make sure they're part of your bookkeeping system, because you might be able to claim them as tax deductions later.
The important thing is to have an account for your business that's separate from your personal account. The IRS and CRA both recommend keeping all personal and business finances separate. This can be a bookkeeping challenge for many home-based businesses, but the painstaking record keeping will be worth it if the government ever calls on you to justify your business deductions.
The other advantage is that a separate business account may be seen as more professional when you're dealing with vendors or suppliers. Home-based businesses may not be taken as seriously as conventional businesses, so by showing that you're running the business professionally, you're boosting your credibility.
Picking a Financial Institution
Begin by sitting down with the customer service representative at your current financial institution. Ask about the various accounts that are available, including escrow or trust accounts if your business will be required to deal with these. When making your choice, think about how many checks or electronic payments you're likely to make in a month and how many deposits you might have. Is there a limit on either? ATM cards can be helpful for making check deposits (night deposits for cash are available, too) and for withdrawing petty cash.
You may have chosen your current financial institution when you had your paycheck direct-deposited — as a home-based businessperson, you're likely to be driving there to make deposits on a daily or weekly basis, so consider whether the location is still as convenient to your office as it was.
Using your current financial institution can save you time — you can make one trip for both personal and business purposes. But be sure to comparison shop, since other institutions may offer a better deal for small business customers.
If you envision needing a business loan in the future, establish an account with the financial institution that seems most open to that possibility. Even in today's world of corporate banking giants, personal relationships do matter.
Credit Cards
If you're planning a retail business, then you'll need to seriously consider accepting credit cards for purchases. Credit card companies will tell you that credit card customers spend more per visit on average, and it certainly does provide an important convenience factor. But from your point of view, it's not free, and you'll want to shop around for the best merchant account for your needs. Start with your financial institution — they likely work with a reputable credit card processing company, and you'll be able to enlist the help of the institution if you ever have problems.
You should consider obtaining a credit card in the name of your business. Again, this looks more professional and also helps you to keep personal and business expenses separate. If you use a personal credit card for a business expense, be sure to pay that amount directly out of your business checking account when the bill comes.
Find out not only how much the card companies charge, but which cards they allow you to process and what the fees are for each. Fees and percentages for merchant accounts will vary from company to company. If you sell via direct mail, phone, and the Internet exclusively, expect to pay more than for face-to-face sales in which you're able to process the customer's card in person. You may also be charged a fee per transaction, a monthly fee, and an application fee. Some companies may require you to buy or lease equipment, while others may offer an authorization-by-phone set-up with no equipment. Review your needs with the credit card processing company and do your research at various financial institutions or on the Internet.
