How Many Business Bank Accounts Should I Have?
Effective money management is one of the cornerstones of a successful business. Many entrepreneurs wonder if having multiple bank accounts is necessary.
The answer depends on your business needs, but maintaining more than one account can help organize your finances and improve financial management. This overview explains the benefits of multiple bank accounts and provides clear steps to set up a system that works for you.
Understanding the Need for Multiple Bank Accounts
Having multiple bank accounts means opening different accounts for specific purposes such as daily operations, savings, and sometimes even for processing credit card payments alone.
Definition: The practice of segregating funds into various accounts to manage cash flow, expenses, and savings more effectively.
Benefits:
Clearer financial organization.
Better expense management and budgeting.
Easier tax preparation by keeping records distinct.
Reduced risk of mixing personal and business finances (co-mingling).
Actionable Steps for Setting Up Multiple Accounts
Open a Primary Operating Account:
This account is used for daily transactions like paying bills and receiving customer payments.
Keeping it dedicated to operations makes tracking revenue and expenses straightforward.
Set Up a Savings or Reserve Account:
Transfer a portion of your profits into this account for taxes, emergencies, or future investments. Digital Banks like Novo allow you to keep funds in different reserve accounts within one bank account.
Reserves is a budgeting tool, similar to an envelope system, that allows you to set aside funds within your Novo checking account to save up for future expenses, ensure you’re withholding for taxes, or simply remember to pay yourself! You can move money into and out of Reserves instantly, make payments directly from Reserves, and automatically place a percentage of your income into Reserves in order to match your budgeting plan. Simpler movement, easier to monitor, and great to see your profit grow.
This account should be separate from your operating funds to avoid overspending.
Consider a Merchant Account:
A merchant account is a type of bank account that allows a business to accept payments from customers, typically via credit or debit cards, or other electronic payment methods. It's a necessary account for businesses that want to process card transactions, either in-store (via a point-of-sale system) or online (via a payment gateway).
If you process many credit card transactions, a merchant account may be useful to manage these payments efficiently.
Examples: Square, Stripe, or Paypal
Evaluate Your Business Needs:
Write down your financial goals and daily operational requirements to determine if additional accounts would be beneficial.
When starting, it is often more of a simpler route to choose 2 bank accounts that allow options like reserves. This helps you to get familiar with the practice of managing money in multiple areas while also seeing your funds in solitary accounts and an added layer of security. We would suggest after 6 months, evaluating the addition of more bank accounts if beyond two.
Think of managing multiple accounts as having different jars for different purposes—one for daily spending, one for savings, and so on. This separation makes it easier to keep track of where your money is going and helps you avoid spending more than you intended.
For effective financial management, consider business banking solutions from Novo and Mercury, which offer features that allow you to easily manage multiple accounts under one platform.
How to Set Up Novo Reserves
Ready to start allocating your funds? You can easily manage multiple budgets with up to 10 Reserves within a single account. Here’s how.
From your account overview screen, select “Reserves” within the left-hand menu.
Once in the Reserves screen, select “Add Reserve” in the top right-hand corner.
Name your Reserve with an appropriate title, such as Profit, Taxes, Operating Expenses, or Rent. Then, add a description, if desired.
Add an initial deposit from your account balance.
Finally, allocate future income by percentage for each Reserve (Our Profit First package includes suggested rates that can be adjusted).
With just a few clicks, your business is set up for Profit First budgeting with additional Reserves created for the unique expenses that keep your business going and growing.