Streamline Your Business With the Right Savings Account

By Sierra Black

How are you managing your small business funds? If you run a small business, you can make your business income work for you by using the right business savings account.

If you run a business, you need to develop some expertise at managing your business finances. One of the worst mistakes you can make is to ignore your finances completely. It's important to get a working financial management system up and running as soon as your business starts generating income.

Some small business owners are hobbyists who go into business because they love what they do. They're passionate about music, flowers, cooking, or writing. They don't necessarily love crunching numbers or balancing the books. But it's no less critical in these cases to keep a sharp eye on the cash inflows and outflows.

There's a whole industry of professional accountants and bookkeepers who can help you manage your small business finances. But if your business is very small, it may not make sense to hire a professional to do the numbers for you.

Turn Your Bank Into Your Financial Assistant

If hiring a professional is beyond your reach, turn your bank into your personal assistant to make your bookkeeping smoother. The right set of high interest savings accounts and a good checking account can help you organize your money and cut down on paperwork.

Keeping your business income and expenses in a dedicated account will make it easier to keep track of what goes in and out. You'll never find yourself sitting up past midnight tearing your hair out trying to remember whether that "dining" expense in your records was a business lunch or a date night with your spouse.

You can streamline your business finances and earn high interest on your cashflow by choosing the right bank accounts. For instance, online bank accounts are a great option for small-business owners. Many online banks offer free checking and savings accounts with no minimum balances. Whether you sell handcrafts, flower arrangements, or music lessons, you can have a dedicated business account without paying fees that eat up your profits.

Many banks pay interest on checking account as well as savings account balances, allowing you to earn extra pennies on the dollars that come into your business.

Get Creative with Targeted Savings Accounts

You can use multiple accounts to make your life easier by creating a virtual "envelope budget" for your business. Some banks allow you to create multiple subaccounts under your main account number, or else easily set up separate accounts without tacking on extra fees. Money put into a subaccount goes into its own "envelope" category so it can be tracked separately from the main pool of funds in your account.

By creating targeted savings accounts, you can manage your ongoing business expenses more easily. For example, a targeted savings account for your quarterly tax payments lets you set aside your tax money as you earn income. That way you're less likely to be stung by a surprise hit from the IRS. And while the IRS does have an automated system that lets you pay your taxes weekly or monthly, managing the payments yourself with a targeted savings account is a better financial choice. As long as you make all your required quarterly payments on time, you can earn interest on the rest of the targeted tax money you save before turning it over to the IRS.

You may also want to create targeted savings accounts for capital expenses you need to save up for. You may think your business is too small to have those kinds of expenses, but take a close look at the equipment and space you use for your work. You might, for instance, maintain one targeted fund to replace your computer every few years.

How to Choose the Best Savings Account

Just as you would for your personal bank accounts, you want to seek out the best interest rates for your business accounts, whether checking or savings. Online banks often offer the best interest rates on savings accounts (though it's not always the case--compare savings rates from traditional banks too), and many also offer free, interest-bearing checking.

A caveat about online banks: Many don't issue paper checks, and deposits can be awkward. You'll either need to be comfortable mailing your deposits to the bank, or use a local bank and transfer funds to your online bank accounts. If you have a business that brings in a lot of cash income or requires very frequent deposits and withdrawals, you'll want access to a bank that makes this easy. (Some online banks have made headway in providing technology to make deposits far easier than before.)

Whatever account you use, remember that structuring your accounts to "envelope" your funds isn't an excuse for getting lazy with your bookkeeping. Yes, keeping your business money separate from your household money will make your job simpler. But you still have to do the work of going over your business records.

The best savings account rates can help you earn a little extra money on your business income. You'll also benefit from keeping your accounts organized. Use your bank accounts in conjunction with a bookkeeping system such as Quicken or other money management software options, and keeping track of your business finances will be less work than you think.