Perhaps you are one of the 5.4 million applicants to start a new business in 2021. Now you are establishing your business and taking ownership over your future. Going to your bank to open up an account can help you minimize financial reporting and tracking headaches. However, just how many bank accounts a small business should have is a persistent question in many entrepreneurs’ minds.
Small business bank accounts provide support and allow you to run your business via benefits such as:
- Effective management of expenses
- Reduction of the headaches of running your business’ financial reporting
- Correctly establish your entities structure to support them and your customers
- Pay bills on time without scraping for cash
- Manage funds for taxes transparently and sustainably
Here we will take a close look at the type and number of accounts your business should have.
Establishing an Operational Account
Establishing an operational account gives visibility to the regular income and expenses. Fortunately, this account will let owners and accounting professionals see and manage payroll, contractor costs, rent or mortgage, subscription expenses, and other recurring payments.
Having money set aside for these purposes helps minimize exposure to risk in the form of unexpected operating costs. An operating account means a much-needed separation of ownership and business transactions. Tracking is also made simpler with transactions for businesses on their statement. Profitability is easier to see and manage when clearly defined as separate from other financials.
Tracking cash flow from this account can be simpler if payments are made via a checking account. Some banks offer perks and benefits for their business checking account product. However, you should consider all limits and fees of any account you open. Branch availability, opening balance requirements, domestic and international wire capabilities are noteworthy.
Marketing & Advertising Account
In the era of COVID-19, a growing number of businesses are establishing an online presence. Getting the proper ad placement means spending advertising dollars. As a result, a marketing and advertising account creates a barrier between the investment into marketing and your regular operating expenses. It is often advisable to set aside 20% of monthly profits for marketing. However, your account professional will be best suited to outline a goal for your company’s individual needs.
LinkedIn ads, Instagram marketing, SEO, and other paid ads are a part of your customer acquisition effort and require the necessary investment. When people have mentioned “spending money to make money,” THIS investment is a critical part of that expenditure.
A Business Savings Account
Many instances could lead to an interruption in cash flow. Service disruption, late payment on open invoices, a global pandemic could all throw a serious wrench into the regular flow of things. Moreover, unpredictable marketplace factors can change quickly. Having a business savings account allows owners to establish funds in the event of one of those shifts. Fewer surprises that impact your bottom line mean an increase in longevity and a more sustainable business model.
Savings of 6-9 months of profit may also allow businesses to pivot in downtimes so revenue generation can occur through new means. Buying yourself time during the leaner seasons is essential to staying afloat.
Value of a Tax & Accounting Account
Business owners know that a wise tax strategy plans for tax time in advance. The usual 30% of leftover gross wages is often a suggestion for businesses in their tax and accounting accounts. However, this number may vary, and your tax professional is best suited to advise you on the precise figure.
Building a habit of savings allows for taxes to make less of an impact on overall operating when you are prepared for tax season. Additionally, the burden of taxes is a certainty, so a business can benefit from etching out a place to capture tax and accounting expenses in advance of April 15th.
The Value of a Credit Card Account
Business credit cards bring a level of convenience that a business checkbook simply does not rival. Businesses can access funds for purchases quickly and easily. Also, there is a level of security and protection for these transactions that is not an exact mirror of debit card transactions. But, again, the added benefit of tracking for tax time cannot be overstated.
Interest-free financing is an offering of some banks that many businesses enjoy. Paying for purchases without incurring interest fees is a true perk.
Other Common Accounts
Outside of these five core accounts, business owners also cite opportunity accounts as valuable when a business needs to pivot or capitalize on an opportunity that may arise. For example, an opportunity for more significant revenue may present itself, reducing the hesitancy to make a decision. Additionally, merchant services accounts allow for accepting electronic payments via credit or debit cards if your business requires it.
Your business has needs that you should map out and define. Financial progress means making a plan that is ironclad and supports your goals for the growth and visibility of your business. Each of these five significant accounts has a value that may be right for your business. Talk to your accounting professional or banking team to determine what accounts align with the vision for your enterprise.