If you have your own business, whether you like it or not, there’s 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.
Keeping separate bank accounts can help keep your business finances organized — 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.
1. Checking Account for Operations
You need a designated checking account for your business. Keep it separate from your personal finances!
Your checking 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’ll also transfer funds out of this account and into other savings and investment accounts.
This account is for money that’s coming and going, which means every dollar has a purpose. But you may also want to leave a small cash cushion here to protect against accidental overdrafts.
Consider leaving $500 to $1,000 in your business checking at all times. If you do so, associate a $0 balance with your cash cushion amount so you don’t purposely slip under that balance.
2. 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. Talk to a CPA to get an estimate, and decide on a percentage of your earnings you’ll set aside in a bank account earmarked for taxes.
Putting 30% 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%. But setting aside this amount means you’ll have the cash available when taxes are due and can pay your bill out of this designated account (instead of digging through your checking or savings to come up with enough to send to Uncle Sam).
3. 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.
Let’s say you want to attend an event for people in your industry. You estimate the cost of the conference plus travel and hotel at $2,000 — and the event is 8 months away. You need to save $250 per month between now and then to achieve the goal and attend the conference.
To keep yourself organized, put that $250 per month into a separate savings account designated for business goals. This will keep you from accidentally spending those funds on something else between now and you goal’s deadline.
4. 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 3 to 6 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 depends 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’re 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’s enough in the bank come tax time to pay the IRS. Look at your regular monthly costs that you have to pay no matter what and add in a cushion just to be safe.
5. Optional “Flexible Spending” Account
Those 4 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 organized. You’ll know the money here isn’t for a specific goal — but it’s 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 Organized 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’re probably in good shape.