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Finance September 15, 2021

How Many Bank Accounts Does Your Business Need?

If you’re not an experienced finance professional, you probably wonder why businesses need multiple bank accounts. Well, let’s simplify: Corporate finances are more than just money-out-money-in. Some cashflows need segregation from others, just like your Revolut FX wallet for travels is not the same as your salary account.

Marsboard. Inc — an international superstar

Imagine you run Marsboard, Inc., selling self-made chocolate bars in a popup store in Alsace. You cover expenses, taxes, and revenues with your business bank account. Easy.

Suddenly, Gordon Ramsay comes across and posts on his Twitter that “These are the most dazzling chocolate bars I’ve ever had”. People start flooding your stand. You start selling your chocolate online. You upgrade your living room factory to a proper one just across the border in Austria — because of their superior chocolate-making skills. Also, there are now a dozen of employees that run the factory and popup stores all over Germany, Austria, France, and Belgium. As a matter of fact, you now have at least six or seven bank accounts: One for the factory, two for the operations in other countries. And for hygiene reasons, you will split up savings, taxes, and expense accounts.

Managing all different sources of cash can become really tricky!

And that’s where we come to today’s main topic: How many bank accounts does your business need and why?

An A+ Bank Account Assortment

1. A checking account for operations.

Your operations account is the liquid finance hub for earnings and paying your expenses. It’s like your personal salary account. And from time to time you draw upon it to transfer funds into your savings and/or investment accounts.

💡 Tip: While every penny should be accounted for, it’s good practice to leave a cushion to avoid overdraft. Look for progressive banking or treasury tools that warn you ahead of larger upcoming direct debits or subsciptions. This way you also keep building your business credit score sustainably.

2. Keep a separate bank account for taxes.

That way you won’t have to rummage through your operations account when the taxman calls. The exact amounts are a function of your legal entity setup, your accountant, and how much you invested into accounting software. The best companies we see have tax calculations largely automated and in real-time.

💡 Tip: Good rule of thumb is keeping around 25–30% of your earnings in your tax account. With more progressive systems you integrate your accounting to automate the allocation of your tax reserves for your tax bank account.

3. Use a bank account for savings.

These savings should and determined by specific business goals. Want to hire that out-of-budget engineer? Attend that conference? Pay bonus for your amazing staff that pulled your company through the pandemic? Separate these savings into a new account.

💡 Tip: Even if you don’t have any out-of-budget activities, you should at least have a bank account for emergency savings. Too often there is an unexpected legal action to fend off, a key contractor to be replaced by a more expensive alternative, or regulators doing funny stuff. Rule of thumb: Store at least your regular monthly baseline costs that you have to expense plus a slight safety margin.

At this point, the legacy finance professional will advise you to start managing complexity and keeping a conservative number of bank accounts — especially if you have a multi-legal entity setup across countries. But since we work with Airbank to unify all these bank accounts into one single dashboard, let’s keep exploring what else we need for sound corporate finance management.

4. Open an interest-bearing investment account.

Realistically, your main account won’t yield interest. Facing negative deposit interest rates in most EU countries, businesses pay for idle cash (on top of bank account fees). Luckily, there are interest-bearing accounts: If you have reserves beyond €100k that you can easily store away for a few months, that’s the solution for you.

💡 Tip: We’ve heard some CFOs investing their tax reserves into interest bearing accounts, and ultra-safe treasuries and bonds until the tax payment comes due in the following year. Smart!

5. Use a payroll bank account

Given the predictive nature of payroll expenses, this account can be flexibly pre-funded ahead of the batch transaction. This makes especially sense for businesses that can use an allocation like that to reduce the number of accounts with more than €100k in deposits to avoid getting penalized with negative deposit interest rates.

💡 Tip: You can allow your HR department or HR manager to access and manage this account. Just connect your payroll system and accounting with your treasury system to fund the accounts correctly and automatically issue the payments.

6. Consider an FX bank account.

Rembember Marsboard Inc.? Well, you’ve gotten so successful you started to import the finest ingredients from South Africa with some deliveries worth €200k due in months to come and to be paid in South African Rand. Just like this, welcome to the world of FX hedging — because you want to pay (well, your accountant wants to pay) €200k, no matter the currency fluctuation and you’re not a degenerate gambler hoping for the currency to devalue, the easiest way is to put the funds into the foreign currency on the transaction date.

💡 Tip: Foreign currency transfers and wallets have become more accessible recently. Ideally however, you hedge exposure from every transaction outside of your home currency automatically based on invoice details.

More tips to manage your bank accounts

At Airbank, we are obsessed with making corporate finance as simple as humanly possible, so here are more hints and tips for your bank management — independent of the account type:

  • Don’t put all eggs into one basket. One day it’s Wirecard, Greensill, or Commerzialbank Mattersburg, the other day it’s yours. For good security, keep segregated funds with different financial institutions.

  • Read the fine print of your bank’s deposit insurance. By law, they only have to insure the first €100k in the European Union.

  • Running several bank accounts will help you build credit scores across banks. This will come in handy for credit cards and loan applications.

  • If your business engages a lot in credit card processing, it would be wise to have one bank account to accept those payments. That way you make your accountants happy when they look into the numbers and determine easily how profitable parts of your business are.

  • Always negotiate with banks. Especially when it comes to loans, this guide explains negotiating interest rates, loan fees, terms, penalties, guarantees, covenants and so on eloquently. Once you understand the terms, collect offers from more than one bank and enjoy the experience of your banks exposing how much they were willing to overcharge you if you hadn’t turned their playbook against them.

💡 And finally, use Airbank’s neat “Account Nickname” feature to structure your bank accounts in just the way you need your business to run to save cost, time, and sweat.

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