Think of bank accounts as financial tools – where each can play an important role within your business. While it might have worked for a time to get by with a single business transaction account, the more your business grows, there may be benefits to separating funds into multiple accounts according to how the money within them is used.
With multiple accounts, you may save time and energy come tax season. By grouping funds into “buckets” or “silos”, you could be better able to thoughtfully budget for upcoming or unexpected business expenses. Before considering this approach, however, you’ll need to weigh up the associated fees and charges associated with opening multiple accounts. To help you decide, first do your research as to what the monthly account fees and charges for deposits and transactions are.
Here are four reasons why opening multiple business transaction accounts might help you better organise your business.
1. You might have an easier time separating transactions come tax time
It’s simple: separating your business funds into multiple accounts can make for cleaner accounting. To get a clearer look at how money moves in and out of your business, open one account for each purpose, such as:
- Everyday expenses (purchasing equipment or office supplies)
- Receiving client payments
- Future projects
- Emergency money
The result will be clear bank statement entries per category, which will also help make your write-off calculations easier to distinguish.
2. Effective cash flow tracking could mean you’re less likely to overdraw on an account
Tracking cash flow might be tedious at times, but a robust monitoring process is important to ensure things don’t slip through the cracks. That’s where opening multiple accounts could be a lifeline. When dividing funds into silos, you should commit to making sure the one that’s designated for outgoings (such as auto-paying utilities) always has a cushion of funds for that purpose. Being proactive about an account’s use means you won’t have to worry about large, unplanned one-off expenses eating into it. Such expenses could potentially lead to overdrawing the account and result in additional fees or invoices going unpaid, both of which could hurt your business and reputation.
3. You’ll be able to draft a more accurate budget
Getting a clearer snapshot of how money moves in and out of your business will help you more accurately budget for regular or upcoming expenses than if you had to sift through hundreds of transactions in one account statement. For example, you might notice that your business’ monthly spend on equipment is reliably around the $2000 mark. Knowing this, you can better forecast for similar purchases in the future.
4. Additional security
Security is often front of mind for business owners, and for good reason. In 2020, Australian businesses reported losses from scams of $18 million, a 260% increase compared to 2019, according to the ACCC’s Targeting Scams report1. In the unlikely event that one of your accounts is compromised, i.e. becomes the target of scammers, for example, the fallout will not be as damaging had all your funds been available in a single account.
What to look out for
In addition to the associated fees and charges, it’s important to keep in mind that opening multiple accounts will require greater admin as each should be routinely monitored to determine whether it’s serving the purpose it was designed for.
Remember, there is such a thing as too many business transaction accounts. Should keeping up with each of your accounts prove too much effort or too costly, look at which ones can be consolidated to reduce the workload and fees.