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Before we get into how to setup your business bank accounts, you need to have an LLC, an S Corp., or a C Corp. before you do this. You also need to be making some money. It’s going to cost you and if you’re not making money, it’s not going to make a lot of sense to you.
Now, this is how you setup your business bank accounts. You need five accounts. The first account will be your merchant debit account. That will be the account where you receive your PayPal funds, Square funds and Merchant account deposits. Any credit card processing goes straight to that account.
Typically, if you sign up with a traditional credit card processor, they’re going to want a hard copy of a business check to verify that you have a business account. If you sign up online, they typically don’t ask for that stuff. Why do you want this account? This account is there only for the purpose of accepting money. That’s it. You’re not getting a debit card. You’re not getting checks. You don’t pay bills out of it. It’s a container of risk.
Limiting the risk is important because if you take credit cards, at some point you are going to have a chargeback. It’s going to happen. It’s not a matter of “if” but it’s a matter of “when.” As long as you have money in that account to cover a chargeback and there isn’t other activity in the account, you can minimize the possibility of bounced checks and extra fees.
The second account you want to setup is your operating account. That is the account you pay your hosting fee from as well as any other related business expenses. You deposit money to pay all operational costs. If you have a physical business and let’s say your monthly nut is $2K to $30K, then that’s the amount of money that goes into your operating account.
The third account you need to setup is an expense account. This account is to pay for things that do not come up all the time. For example, if you need a plane ticket to pay for a business trip to a conference, the money would come from this account.
A fourth account to establish is a savings account. Yes, you will have a savings account. When you have extra money left over, you put it in that account.
The fifth account you will need is a payroll account. Even if you don’t have employees yet, you should go ahead and set it up. Why would you do that? It’s simple. At some point, you want to have employees. You can start saving as soon as you start your business for hiring that first employee. That way, your first payroll doesn’t have to come out of your operating or expense accounts since it is already set aside.
So now, you’ve got your debit account, operation account, expense account, savings account and your payroll account. This is going to cost you nothing depending on your relationship with your bank or it could possibly cost you up to about $500.
Once you set up the accounts, if you need to, you can withdraw the money. You may have to pay monthly maintenance fees. You need to ask your bank some questions before deciding to establish an account with them. “If I set up a business account here, do I get free checking?” A lot of times if you keep a minimum balance in the account, they will not charge fees.
All banks are different, so shop around for the best deal. If you already have a relationship with a bank and you’ve been a good customer, you can talk to the Branch Manager and possibly get those fees waived.
You should know that the Branch Manager can approve credit cards. They can do a lot for you. If the bank isn’t making any money off of you though, they might not be as willing to offer you special services.
The reason I found that out is because I had about a million dollars in a certain bank and the Branch manager pulled me aside one day to tell me about all of the things she could do for me. Once you get some loot in the bank, you will be offered special services.
If you are a brand-new business, setting up your accounts is going to be easier. You should start off by putting 20% of your revenues into each account. That percentage will change with your needs. If you always keep money in the accounts based on this formula, you will always have money. You will never be broke. This system promotes discipline.
As you go through the ebb and flow of your business, you’re going to push as hard as you can to get to 20%. This is the game. This is the magic. So, for example if you make $25K and your expenses are $5K, then you are saving the other $20K and splitting it between the other four accounts. If you do this month after month, you’ll start to experience having more money than you need all of the time.
Let’s talk about payroll accounts. You want to have two to three months of payroll in that account all of the time. That way if you have a shitty month, you don’t have to scramble to make payroll. That way you don’t have to worry about this crucial expense.
As your business grows, you might want to set up other accounts.
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