Why You should have more than one bank account

Firstly to confirm, if you trade as a company you must have a separate business bank account in the name of the business as it is a separate legal entity. If you run your business as a sole trader / self-employed, then there is no legal requirement to have a separate bank account but I do highly recommend it as it keeps your business and personal spending separate.

Back to the topic on hand - You should have more than one account and here's why:

When you look at your bank balance, you think that is your cash to spend, to take out the business and to enjoy... It's not - you need to pay suppliers, staff, VAT (if you are registered) and of course tax on your profits. This means that some of the money has other commitments and places to go.

If your supplier and staff spending is relatively static each month then it's relatively easy to allow for that and know what you need to hold in your bank as a minimum to cover these costs but you should be budgeting for those tax bills too. I strongly recommend that each month you put the tax cash into a different account and don't spend it, don't borrow from it, don't even look at it, it's not really yours.

For more established businesses, it can be worth having a third account where you build up "rainy day/emergency" funds to ensure you have a few months of pay for yourself set aside and for unexpected spending.

There's a book which takes this further and you end up with seven (yes, seven!) accounts, it's called "Profit First" by Mike Michalowicz and is well worth a read.

Now, you don't necessarily have to have three or even seven separate bank accounts. You could create different portfolios under your main business bank account and transfer funds to it.

Whichever way you choose to go, the important thing is to separate what is actually yours, from what is not (Taxes, Staff salary etc).

I go into all the details about this topic in this blog post - click here to read. I highly recommend that you give this blog post a read. It will assist you in apportioning funds and give you further insight into why and how.

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