21 Oct As Your Business Multiplies, Your Bank Accounts Shouldn’t
By Karen E. Klein, Business Week
Question: We recently expanded to open our third retail location this year. Should we have a separate bank account for each location? Or is it OK to have one account to run through all our operating expenses, payroll, etc.?
Answer: It’s easier, and probably cheaper, for you to route everything through one bank account. That’s true as long as all three locations operate under one corporate entity and use the same employer identification number.
If, however, you’ve established separate companies to operate the locations, you will need separate accounts, says Cece Mitchell, senior vice president and Small Business Administration lending manager at Zions Bank. That’s because with each company operating under its own identification number and filing its own tax return, you won’t want to mingle the funds.
Of course, maintaining separate accounts is a bigger hassle for you—and it will cost you more when it comes to banking fees, printing checks, and accounting processes.
Better to use one account and take advantage of your bank’s cash management services. They should allow you to concentrate all your business banking transactions, Mitchell says, while still tracking the revenues and expenses at each individual store. “Deposit slips and checks can be coded to indicate the separate locations, as can the individual merchant terminals,” she says. Most accounting software can be set up in a similar fashion, so you can track financials and produce reports by location.
Janet Coletti, senior vice president for business banking at M&T Bank, points out additional benefits of keeping your bank accounts to a minimum. With a single account you’ll only have to track a single balance, which will make managing payments simpler. And, if your bank requires a minimum balance on business accounts, you’ll be more likely to maintain that balance when all your revenues are combined. A bigger balance may give you leverage to negotiate on service fees, too.
As your business continues to grow, revisit your decision occasionally. “For some larger businesses, an additional account to manage payroll expenses separate from payables makes the reconciliation of those expenses much easier,” Coletti notes.
And if you’re still not decided, ask your bank to prepare an analysis of both scenarios and then bring your accountant in to help you determine which one works best for you.
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