Calculating The Right Number Of Bank Accounts For Your Solo Business

Managing your finances when you’re self-employed, operator of a small business or running a private practice can look chaotic at times. From the outside looking in, it can sometimes even mimic watching a circus performer juggle several bowling pins while standing on a tightrope well above the ground. It’s a perilous process, one that can leave the solo owner tumbling.

One reason for this complexity comes from the fact the business has such an impact on the personal finances, and vice-a-versa. The two are intrinsically intertwined. It begins as soon as you open the first business account and get started on your company.

But how you manage the different accounts plays a big role in whether you feel like you’re successfully pulling off a juggling act or not. And how many different accounts you have overall could play a role in the complexity.

This issue recently came to the fore, when a CNN writer talked about how the use of many different accounts helps her manage her finances better. Through the use of multiple personal and business accounts – five in total – it has “been a game changer” for her finances, she writes.

The writer, while she considers five accounts a lot for her, actually falls in line with the average. While few reports have uncovered the typical amount, research conducted by Mercator Advisory Group in 2019 suggested that the average number of accounts is 5.3 per person. It’s unclear, however, whether that number has gone up or down through COVID-19 and the recovery.

While this complexity may work for the writer or the average person, there’s no one rule when running a business on how many accounts to have. But here are some ways to think about whether another account makes sense for you.

Separating the Business and the Personal

While the number of accounts you have may differ, one of the first steps you likely took as soon as your business began bringing in some money was to open a business account.

This important first step isn’t necessarily required – but it’s one that allows you to separate your finances from the business. By doing so, you can truly track the business expenses from those of the personal finances. This makes it easier to take certain deductions for business expenses come tax time.

But it also allows you to create two different financial ecosystems – one for your business and one for yourself or family. This can provide you with a way to better plan for business expenses or goals, while ensuring such plans don’t overlap into the requirements and wants of the family.

Through the business account, overtime, you can also build enough to where you’re paying yourself a set salary every month, no matter how much more (or sometimes less) comes in. This protects the business by allowing a safety net to grow, while also ensuring your personal finances are covered.

The easiest way to do this is through a business checking or savings account. It’s also where you will need to store funds for employees, if that becomes a move you make down the line.

Creating Different Accounts for Different Goals

One reason that people open multiple checking and savings accounts is to fund different goals.

Maybe you open a high interest savings account to store funds while saving for a house. Meanwhile, you keep two checking accounts – one to pay bills from and another to use for entertainment purposes.

It’s a budgeting tactic that can come with some downside if you don’t remain on top of the accounts. If you have multiple checking accounts, you have to watch out how much you pull from each account. Since your money will be spread thin, there’s a chance you could overspend and incur a fee.

Or there’s also a chance, that because there aren’t enough funds in the account, the bank will charge you a fee to use it.

You want to avoid these extra costs when storing your money in banks or using this budgeting method. To do so, make sure whatever account you open, it at least has enough to cover the minimum amount required to avoid an operating fee. Working with a bank that provides low to zero-dollar minimums can allow for this, but you also want to make sure that they’re a viable bank, in such cases.

And when selecting a savings account, ensure that it’s a high-yield account. With interest rates rising, the amount you can earn by storing funds in an account improves the ability to make money while you save.

Look for Buckets

You don’t necessarily have to open a few different personal accounts, if you have trouble saving. Many banks now offer so-called “buckets” or ways to break out your balance into different goals.

Say you’re saving for a house, car and paying back student loans. You can actually have a paycheck broken out before you ever see it, with a certain portion moving to the house, car or student loan bucket within the same account. The remaining balance would show up in your main portion of the account.

While the bank displays these categories as buckets, the money continues to sit in the account as one combined total. This means you don’t actually have different accounts. If you overspend in one, it will not result in a fee. Nor will it prevent you from raiding a bucket to pay for another bucket’s need.

But, for some, the mind game you’ve played on yourself can better help you budget, without having to resort to opening many different accounts.

Pay Attention to Having Too Much in an Account

Finally, an important reason to have multiple accounts? If you have too much money in one account that surpasses the Federal Deposit Insurance Corporation (FDIC) limit for its insurance coverage.

When you have funds in a bank, you can have $250,000 from each account protected by the FDIC. If the bank goes under – like with fears of bank uncertainty – then the FDIC will reimburse you for the money lost up to $250,000.

Having multiple accounts to store funds if balances reach beyond $250,000, is a smart maneuver simply to better protect your finances, no matter how many other accounts you have.