How many bank accounts should my business have?

If you haven't heard, having a separate bank account for your business isn't just a really good idea. 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 account?”, “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 talk about Danielle, a client of mine who had a negative balance in both her personal and business accounts on a consistent basis. We created a plan for her that gave her back her time and energy.

Danielle followed the Desi Method to stay organized and manage AND protect her money. 

She went from having the IRS knocking on her door looking for their payment to actually paying herself a reasonable salary and setting aside money for taxes…and she was able to continue outsourcing her bookkeeping, all while having positive bank balances.

To keep her finances organized, Danielle opened four bank accounts. An Income account, Operating Expense account, Tax Savings account, and Business Prosper Fund Account. Now let’s dive into what each account is used for.

Income

An income account is a basic checking account. Money flows in (people paying you). You will also use this account to transfer to your Operating Expense, Tax Saving, and your Business Prosper Fund. 

This account should be at $0 two times a month. You will be dispersing what is in this account to the other three accounts on a set date each month. I typically recommend every other Friday. (Pay day!)

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 out (your expenses and credit card payments). 

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 tax payments. 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.

On your designated distribution dates, 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 15%-20% of your revenue (income before expenses) in this account, but always check with your bookkeeper or tax professional to get a better picture of what needs to be set aside. 

Business Prosper Fund

The fourth and final account you should have is your Business Prosper Fund. This fund is a combination of your emergency fund and your profit savings fund. You could split these into two separate savings accounts if you want.

As your business receives money, you will transfer a set amount or a percentage into this account. I recommend having three months of operating expenses set aside in your Prosper 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 to your Business Prosper account.

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 four accounts, do four. 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. Are you ready to have someone on your team to help you *actually* grow your business? Let’s chat. We’re happy to answer any questions you have!