The Case for Separating Business and Personal Finances

There’s a question that comes up often:

“Do I need a separate business bank account/credit card?”

The short answer is NO, you aren’t required to keep a separate bank account/credit card if you are a sole proprietor (not incorporated).  Without getting too technical, in the eyes of CRA, you and your business are one--so there is no need to keep finances separate.

However, you MAY have a separate bank account if you wish. And here’s why I think it’s a great idea:

• It’s a quick indicator of how your business is doing.  Having all your income and expenses come out of the same account will expose any cash flow issues very quickly.

• You’re less likely to forget business expenses.  Yes, putting everything on your credit card “for the points” sounds like a great idea. (I feel you!)  But if you have to comb through your personal bank/credit card accounts each month, it’s not only going to take extra time, but you also run the risk of missing something. The advantage of credit card points will quickly vanish when you have to pay more tax due to missed expenses.

• It’s a great step in scaling for growth.  If you have ambitions of growing your business, you will want to keep business and personal finances separate.  You can clearly see how much you can afford to pay yourself, and you can intentionally set aside business income for investing in growth.  

What are your hesitations for having a separate bank account?  What have you found to be an advantage or disadvantage to keeping them separate?