The pros and cons of having multiple business bank accounts
Business owners can sometimes find it challenging to keep tabs on just how much money the company is holding and what its immediate commitments are. One solution is to consider the possibility of having more than one business bank account.
There are advantages and difficulties in opting for this approach, but it is worth considering. Some owners will feel as though they have enough problems tracking one account and will only double their headaches with more, but that is not necessarily the case. Multiple accounts can mean that cash is set aside for regular payments such as payroll and long-term commitments such as tax liabilities.
Most companies will have a current account and a savings or reserve account, in some cases allowing the provider to transfer funds to pre-empt an account from becoming overdrawn. At times this can be useful, but it does not provide the same degree of control that two independent accounts can offer. It is a question as to what is best for individual companies and how they prefer to organise their finances.
Advantages of operating more than one business account
The most significant advantage is the additional control over finances, allowing companies to have a clear vision as to how the firm is operating. One account might be allocated for everyday expenses, while another is used to cover taxation requirements. Perhaps even a third to create a strategy fund for future development or to cover crisis expenses such as failing equipment.
1. Separate money
Having a dedicated account for operating expenses means that you can separate capital expenditure from day-to-day costs. You will then have a clear view as to how efficiently the company is performing and how operating costs are covered. You will also be able to identify seasonal factors and whether particular times of year see a fall in income.
2. Better money management for tax liabilities
A second account for regular payments such as tax payments, including VAT, will mean that there are no unexpected financial surprises. You may also be able to earn interest on such an account.
3. Different accounts for different needs
Setting up a savings account for capital investment in future projects protects you from the demands on your finances that significant equipment failure can cause. Some firms see this type of account as an emergency fund rather than a savings account. These funds can also help future company development.
4. Improved financial organisation
You will have extra spare time to focus on other areas of the business if you are successfully operating additional accounts. You will be able to show your bank that you have a reputation for sound financial management. This will have a positive impact when the time comes to approach your bank for any future funding.
5. Additional security
Finally, having multiple accounts offers greater financial protection. In the unlikely event of one of your accounts being hacked, your business will not be heavily impacted as you can rely on alternative accounts.
How operating more than one business account could work against you
There are, of course, some disadvantages in extending the number of bank accounts you operate, and some of these depend on how comfortable you are in dealing with the information they provide. You may find it challenging to keep an eye on different accounts, especially if you are a small firm used to operating just one account and using a monthly check and balance system.
Having multiple bank accounts can create the following problems:
1. Tracking multiple balances
Keeping multiple accounts means that you will have company funds in different places and can be tricky keeping an eye on balances, especially if you have standing orders or direct debits in place. This means that you or your accountant will have to track outgoings and deposits in all accounts, and this may make it harder to take a snapshot of the current financial situation. If margins are narrow and cash flow is an issue, then this may be a problem.
2. Additional time and effort
Having a single account may be a positive as it minimises management time and encourages you to undertake traditional accounting principles to ensure that books are balanced and future commitments are covered.
3. Unwanted fees
There may be issues with your bank when opening additional accounts in terms of fees. Banks may require minimum balances, especially if you are a new business, and multiple accounts could put pressure on your finances. If you fail to meet the bank’s requirements, fees may be applied, which will come straight from the company’s bottom line.
How attractive are multiple accounts?
Every firm and owner is different. Utilising additional accounts can help you to organise your finances and give you a clear view as to how your business is operating. It will also offer the opportunity to save for future commitments and liabilities.
The downside is that you may have to spend more time scrutinising your accounts and ensuring they are in good order in mitigating any unnecessary fees.
The financial health of your company is crucial to its success and suitable arrangements with your bank, which are appropriate for you, are vital. With pros and cons to both approaches, the choice comes down to each individual.