5 Bank Accounts Every Small Business Owner Needs

Octavia Conner

By Octavia Conner

Tags: All, Cash Flow, Accounting

Effective money management starts with building a solid financial foundation. 


One of the first bricks into building a solid financial foundation is establishing and effectively managing your money flow. 


Now, this is needed to reduce or eliminate financial stress while building a million-dollar and beyond business. 


Therefore one of your first bricks is centered around the number and purpose of each bank account your company should maintain. Knowing the purpose and goal of each account is essential because it provides you with direction. 



First Bank Account - Business Operating Account


The is usually the first bank account you will open. The purpose of this account is to house the inflow and outflow of your financial transactions. 


For example, the revenue earned and your business's daily expenses will flow in and out of this account. The daily expenses could include rent, subscription services, office supplies, meals, professional fees, etc.


The goal of this account is to maintain at least one month of operating capital at all times. 


Second Bank Account - Cash Reserve Account


Your cash reserve account is where you build and maintain a cash cushion for your business. A good metric or goal is to maintain four to six-month of operating capital in this account at all times. 


You can start by allocating 10% at a minimum into this account. The goal is to increase the allocation percentage over time. To accomplish this effectively, you have to ensure that your services are priced for profit, and you are not overspending. 


The purpose of this account is to eliminate financial stress and build a cash reservice that will make you smile each time you log in to this account. Also, this account will prepare your business for worse-case scenarios and unexpected financial surprises. 


Regarding your Cash Reserve account, I also recommend that this account is located at a different banking institution from your operating account. 


Third Bank Account - Payroll Account


You should have an account designated for these funds if you have payroll costs such as wages and salaries, payroll taxes, benefits, and employee onboarding costs. 


Your payroll account should have at least one to two months of expected payroll cost reserved in the account at all times.


You should never have to worry about having enough money to cover payroll. In addition, payroll costs should include your salary as the CEO.


Forth Bank Account - Tax Reserve Account


The purpose of the tax reserve account is to eliminate stress come tax time. This account will give you peace of mind as you prepare for an expected tax bill. 


Throughout the year, you want to save a minimum of 30% of your profit in this account. 


As an LLC, you are taxed on the profit you generate. Therefore each month, you should take 30% of your generated profit and allocate it to your tax reserve account. 


If you prepare quarterly or annual taxes, you now have this money set aside; therefore, you do not have to experience a cash crunch, incur penalties or interest to pay your taxes. 


Fifth Bank Account - Marketing & Growth Account


Statistically, business owners should spend 7% to 10% of their desired annual revenue on marketing and growth opportunities. 


To gain market share and scale, you must market your business consistently. 


What if you were given an opportunity that would position you as a thought leader or expert in your industry. Are you prepared financially to take advantage of it?


That is the purpose of your Marketing & Growth Account. Therefore I recommend that you allocate 7% to 10% of your gross revenue earnings into this account on a monthly basis. 


Today, I discussed the five bank accounts you should maintain. 


A good money habit is to allocate the monies into these bank accounts with each payment you receive. 


For example, when you receive a client payment, 10% will immediately be transferred into your Cash Reserve account and 10% into your Marketing & Growth Account. 


At the end of each month, 30% of your Net Profit should be transferred into your Tax Reserve Account. 


If you have any questions or comments, please leave those below. Also, download the Say Yes To Profits Plan to help you gain financial control while maximizing cash flow and profits. 


This is Octavia Conner. Until next time, Say Yes To Profits! 


Say Yes To Profits Plan