Let’s face it, small business finances can feel like a tangled mess. While entrepreneurs are frequently brimming with innovative ideas, they may not always excel at managing their finances. Today we’re discussing how to organize your business bank account.
I will equip you with the tools and strategies to optimize your business bank accounts and transform financial chaos into calm control. Keep in mind that there are a lot of philosophies on how to do this. Ultimately, you’ll have to make a decision on what’s best for you and your business.
With that said, let’s get started:
This might seem obvious, but if you’re new to running a business, you might not know how important it is to separate your business expenses from personal ones. That means opening a checking account specifically for business use. When sales are made, the proceeds should go into this account. Payments to vendors, employees, landlord, etc. also come out of it. Lastly, you should pay yourself a consistent salary out of this account instead of withdrawing from it at random for personal expenses.
Now, there is some debate on how much money should stay in the operating business account at all times. Some say to leave at least one month’s worth of business expenses in there. Others suggest saving until you have three or even six to twelve months’ worth. It really depends on the nature of your business and your tolerance for risk in general. But for today’s purposes, I’m just going to suggest getting your business bank account balanced up to three months’ worth of expenses or more.
So let’s say your total monthly expenses are $10,000. Your goal would then be to build your operating account up to $30,000. That way, if, for whatever reason, money stops coming in, you can still take care of the bills for three months.
This is an issue I’ve experienced with many clients, and earlier on in my career, I didn’t even think to address it. But then I realized that while I was helping many business owners make more money through coaching, I didn’t do a great job of making sure that they paid the resulting taxes.
So make sure that you open and build a tax account. The amount needed in this account is going to vary greatly depending on how your business is set up and what payment schedule you’re on. I suggest working with a CPA or another tax specialist to find out exactly how much you’ll want to stash away in your tax account. When in doubt, save more rather than less. You do not want to owe back taxes, and having a little extra in this account on the due date is much better than not having enough.
This is an account where you save for bigger purchases. For example, maybe you’re planning to buy a new van for your fleet. Or perhaps you’re considering moving into a larger space. Whatever your next big goal is, you can save up for it with a growth account.
Even if you have no major purchases coming up, you can start building a growth account for the sole purpose of capitalizing on opportunities. You never know. Maybe you’ll get a once-in-a-lifetime chance to acquire a competitor who’s going out of business during the next downturn. You don’t want to miss out on something big because you weren’t prepared.
All that being said, you should fully fund your operating and tax accounts first before contributing to the growth account. And if you’re not too risk-averse, you can even consider investing a portion of or all the money in your growth account into the stock market for a better potential return.
The fourth account could serve a variety of different purposes. Honestly, you could benefit from more than 4, but I want to keep things as simple as possible. Here are some ideas for a fourth account:
Managing your business bank accounts effectively is a fundamental step towards financial stability and growth. Implementing the strategies discussed will provide you with the financial resilience required to weather unexpected challenges and capitalize on exciting opportunities.
You may find this topic boring, or you might think it’s way too much work to manage all these accounts. However, you’ll have a much easier time when it comes to bookkeeping. And since everything from payments to transfers can be automated nowadays, management of your accounts will be a breeze once you get them all set up.
So go out, take action, organize your accounts, and empower yourself to navigate the world of business with greater ease. Here’s to making each day of your entrepreneurial journey better than amazing!
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