If you’ve been following me for a while or you’re one of my incredible clients, you’d know I hold firm when it comes to bank accounts and your business. If you haven’t set up at least ONE separate business bank account, I literally won’t even touch your books #SorryNotSorry.
What *might* come as a surprise to you is that if I had my way, every business would have 6 separate bank accounts. I know, I know it seems extreme but there’s a method to my madness.
Let me explain.
Bank Account #1: Main (or Income)
The income account should be where all of your income gets directed to – customer payments, Shopify deposits, all those kinds of things.. Self-explanatory but when I say ‘income’ really.
Because then you’ll be moving funds to the other accounts you decide to use.
Bank Account #2: GST
If your business is registered for GST you should have a separate bank account to manage it. As a rule, 10% of your income should be transferred into this account monthly. The big bonus here is, come BAS time, you will have enough (hopefully with a surplus if you have expenses with GST) to pay your BAS without breaking a sweat.
This should be a non-negotiable for you – get it right from the start and you won’t end up in BAS struggle street.
Bank Account #3: Tax
Any registered business or sole trader earning an income should get in the habit of saving for tax. My clients to allocate a percentage (for example 30%) of net profit to this account. While I can’t give advice on your taxation, it’s likely you will have other deductions that your Tax agent will be all over for you – meaning you could pay less (or more) so always keep in touch with them for tax planning.
Bank Account #4: Expenses
Work out your monthly expenses and allocate this amount to your operating expenses bank account every month.
If you work with a bookkeeper, they can help you work this out pretty easily. If you are doing your own books, simply add up all expenses (software, consultant fees, subscriptions, materials and so on!) and round the figure up to get your estimate.
Then you know your regular expenses are covered – how good is that.
Some folk like to have additional expense accounts – but we’re keeping it simple for today.
Bank Account #5: Owners’ Wages
You’d be forgiven for thinking your wages should just be pulled out of the income account. Legally speaking as a sole trader, you can just do that but, there’s a smarter way to do business. Set up an Owners Wages bank account and pop your income in here. That way it’s completely separated and there’s no grey area – and it’s a great way to make sure you do it and pay yourself!!
If you’re a company you’ll more than likely be an employee going through payroll – so you don’t need this one, as it’s included in the expenses.
Bank Account #6: Profit (Savings)
And finally, we get to the juicy one. Profit. This is what’s left over after you’ve paid expenses, wages, GST, Taxes and the like. Ideally, this should be 5% or more per month. Making a point to add to the balance every month will grow your business. If you wait for the profit to magically appear, you might be waiting forever.
This profit is your business security blanket too. Unexpected expenses, opportunities and big ideas and investments will be covered and made possible if you have the money sitting there.
We can help!
Of course, the more complex your business becomes, the more structure you will need with your business bank accounts. A good bookkeeper can provide advice and support customised to your needs. This method works super well with visual or creative minds – because you can see at a glance what cashola you have.
This blog of general ideas is not customised to you and your needs – this many bank accounts might not be your cup of tea, so you do you. Be sure to get professional advice on any percentages or amounts you need help with.
If you’d like to chat about your business and how the team at Accounted For You can make your money work better, we’d love to chat! Book a call and let’s get you sorted for a smoother ride.
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