How many bank accounts does your business need?
If you have your own business, whether you like it or not, there is an added layer of complexity to your personal finances. You not only need to consider where your own money goes and how it gets there, but you need to think through the same questions when it comes to the revenue your business generates, according to workablewealth.com/.
Keeping separate bank accounts can help keep your business finances organised — which is important with a complex situation! — But having too many can become hard to manage.
Here are a few suggestions on what bank accounts you need and why for your business, so you can send money to the right places without being overwhelmed by multiple accounts to track.
Current account for operations
You need a designated current account for your business. Keep it separate from your personal finances!
Your current account for operations is like the hub of your business’s financial web. All earnings should flow into this account, and you should use it to pay expenses and credit cards. You would also transfer funds out of this account and into other savings and investment accounts.
This account is for money that is coming and going, which means every naira has a purpose. But you may also want to leave a small cash cushion here to protect against accidental overdrafts.
Account for taxes
Business owners are responsible for paying their own taxes throughout the year. No one is withholding money from the earnings coming to you — so you need to separate out what you owe the IRS and your state from money you can use to pay expenses (and yourself).
Exactly how much you owe in taxes depends on your state, your revenue, and your filing status. Decide on a percentage of your earnings you would set aside in a bank account earmarked for taxes.
Putting 30 per cent of your monthly earnings into an account designated for taxes is a good rule of thumb. You can pull from this fund when you need to pay estimated taxes throughout the year and when (if) you need to pay annually every April.
Ideally, you won’t actually need to pay 30 per cent. But setting aside this amount means you would have the cash available when taxes are due and can pay your bill out of this designated account (instead of digging through your savings to come up with enough to send to someone.)
Savings account for your goals
Want to attend a specific conference or build a new website? Set a business goal for yourself by looking at the total cost of what you want to accomplish. Then break that number down by the time between now and when you want to achieve the goal so you know what to save every month.
Account for emergency savings
Keeping an emergency savings account is a huge piece of the foundation for financial success. You likely keep a cash reserve set aside to cover big, unexpected expenses in your personal savings — but your business can experience emergencies, too.
Designate a liquid savings account that you can access easily at any time as your business emergency savings. While the three to six months’ worth of expenses guideline works great for your personal life, your business may require something different for its rainy day fund.
The amount of cash you should set aside for those “just in case” scenarios depend on your business expenses and responsibilities. If you have employees or contractors you need to pay, your business emergency fund should maintain much higher amounts of cash than if you are a freelancer who works on their own with minimal expenses.
Your business likely needs some amount of cash to operate, from paying bills and buying supplies to making sure there is enough in the bank come tax time to pay. Look at your regular monthly costs that you have to pay no matter what and add in a cushion just to be safe.
Optional “flexible spending” account
Those four accounts above should serve your business well. But you can use other accounts, too, especially if you want to earmark money for specific purposes.
If you want the money available for opportunities as they arise, consider opening a separate savings account and making a small monthly contribution to it.
Keeping this account separate from other accounts can help keep you organised. You would know the money here is not for a specific goal — but it is also not just to spend.
Cash held in this “flexible spending” account provides you some freedom to spend on things as they arise instead of trying to plan for every single thing throughout the year. Keeping it separate also helps ease the temptation of using other funds (that are supposed to be for savings or a set goal) to make a purchase or investment you didn’t foresee.
Keep your business bank accounts organised and manageable
All this being said, you don’t need an endless array of bank accounts for your business. There is such a thing as too many accounts (and you may be there if you frequently forget about a few of them).
But if each account you maintain has a purpose and helps you reach your goals while paying all your costs, you are probably in good shape.