If organizing your business’s finances isn’t a top priority, rest assured you’re not alone. Believe it or not, a recent study from TD Bank revealed that 27 percent of small business owners use the same account for their corporate and personal finances, let alone setting up multiple business accounts.
Having worked with thousands of Founders over the years, I know there’s a solid case for setting up multiple business bank accounts, as frustrating as it may seem to most. To help you determine if this approach is right for you and your business, consider the following merits:
Helps You Stay Organized
Different bank accounts can serve different needs. For example, you may designate one account for money received and paying regular monthly bills, one for taxes, another for future expenses such as annual accounting bills or major capital expenditures, and finally, a fourth for emergency expenses and retained earnings.
Keeping separate accounts for each of these functions can give you a clear picture of where your finances stand and can keep you on track with your long-term goals.
In addition, you may benefit from different account features. For instance, you might need a lower minimum balance for your expense account, while a high-interest business savings account with a higher minimum balance might be more appropriate for your rainy-day/retained earning fund.
Know What’s Yours
Your bank account might seem flush right now, but how much of that cash is really yours to keep. It can be easy to spend money when it’s sitting there, only to find you don’t have enough money when it’s needed.
Having separate accounts can ensure you have enough to cover your expenses when they come due. It may take some practice to get into the habit of setting money aside long before you need it, but it will keep your cash flowing. After all, issues with cashflow is one of the top reasons businesses fail, so set yourself up for success with this financially healthy practice of saving money.
Establish a Strong Track Record
As your business grows, you may need additional financing to bridge gaps in cash flow or pursue expansion opportunities. Successfully maintaining multiple business bank accounts can help you establish a proven track record of managing your finances responsibly.
When you apply for a business loan, most lenders make you disclose detailed records of your finances — both business-related and personal. Many lenders won’t even consider you for a loan if you don’t have a dedicated business bank account. However, if you have a history of healthy cash management, you may have better luck convincing the lender of your creditworthiness.
Provides Additional Security
Unfortunately, security threats aren’t something your business can afford to ignore. In fact, 60 percent of small businesses say attacks are becoming more severe and sophisticated, according to a recent study from the Ponemon Institute.
While it’s not guaranteed, keeping your business’s funds in more than one location may help protect you if criminals hack into your account. At a minimum, you should ask your bank about adding protection to your account when you open it.
Be forewarned, despite the many merits of multiple accounts, most banks require a minimum balance to maintain each account. As a new business owner, meeting the minimum balance in one account can be challenging, let alone meeting multiple minimums. This can add unnecessary stress when trying to get your business off the ground.
Before opening multiple accounts, be sure to ask about each bank’s policies and the penalties for not meeting them. On average, banks charge customers anywhere from $15 to $25 per month if the minimum balance on a business checking account isn’t met, and other hidden fees may apply.
The Bottom Line
Having multiple business bank accounts can keep you organized, secure, and may even help your business obtain financing down the road. On the other hand, some Founders may find multiple managing accounts challenging and unnecessarily time-consuming at first.
Ultimately, the right solution for your business depends on your financial circumstances and goals. While more than one account may not be right for you today, you can always consider opening more as your business matures.