How Many Bank Accounts Should My Business Have?
As I’m sure you have heard, having a separate bank account for your business, it’s a really good idea, in fact, it’s a must. But once you have a separate bank account set up, you may find yourself wondering “Should I have more than one checking?”, “Should I have a savings account?” or “What are the benefits of having multiple bank accounts?”
Those are all great questions and I’m here to break it down for you, but before I do, I want to recommend an audiobook for you. I say audio because it can be hard to get through, especially for creatives, so listening is easier to digest. If you haven't heard, Profit First by Mike Michalowicz is an amazing financial book for small business owners. Few disclaimers, I don’t 100% follow or think all the accounts he recommends are necessary, but I do think it’s a great book to reshape your mind on how to best utilize bank accounts to run your business.
Having more than one bank account helps you stay organized, manage your money better, and protect your money. Now let’s dive in.
Operating Expense
An operating account is your basic checking account. It’s the main account for your business and it’s where you run your day to day operations. Money flows in (people paying you) and money flows out (your expenses and credit card payments). You will also use this account to transfer to your Tax Savings and your Business Slush Fund.
Because money is continually coming in and out, each dollar has a name to it. I recommend keeping a little cash cushion (depends on the business but normally around $1,000) to make sure you don’t go under $0.
Tax Savings
If you expect to owe more than $1,000 in taxes in one year, you are required to pay estimated taxes. Those due dates come around fast and I have seen so many business owners not have the funds to make their payments. Why? Because the money was sitting in their checking account and not a designated tax account.
Every week or month, take time to move money over to your tax account to cover your federal and state payments. Once it’s moved over, it’s easier not to spend because it’s not as accessible. That way there is no stressing when it comes to paying your estimated taxes.
I recommend putting aside 20%-30% of your profits in this account, but always check with your bookkeeper or CPA to get a better picture of what needs to be set aside.
Business Slush Fund
The third and final account you should have is your Business Slush Fund. This fund is a combination of your rainy day (emergency) fund and your profit savings fund. You could split these into two separate savings accounts if you want.
As your business starts to make profit, you will transfer money here (after you have set aside money for taxes). I recommend having three months of operating expenses set aside in your Slush Fund account. That way if all income would stop for some reason (hello, 2020… we all know how that went) you wouldn’t have to shut the doors to your business.
Then on top of that, if you want to save to redo your website, or hire a coach, you would put that money here. Set a goal for yourself of what you want to save each month and transfer that money here.
Again, this account could be split into two (Emergency Fund & Business Savings).
Find a System That Works for You
The goal for this is to find a system that works for you. If you like the idea of five accounts, do five. Seven? Have Seven. Just find a system that you can keep up with and that will help you organize your money.
We help clients all over the US structure their money systems to support the life and dreams they want. Ready to have an expert help you organize your finances, fill out our inquiry form and we will be in touch!
