When it comes to your business finances, things like managing a business budget, understanding your balance sheets, keeping an eye on your expenses etc are all key components to succeeding financially but having a business savings account (or accounts) that you consistently contribute business funds to is also very important.
So why do you need a business savings account?
There are a variety of reasons and below I highlight some of the most important ones.
1. For emergencies
Well just like in your personal life, you want to put money away for unplanned business expenses or emergencies (you should also have business insurance), you also want to build up at least 6 months of capital to cover your monthly expenses (i.e rent, online tools, payroll etc) in the event of a slow season or business downturn.
Keep in mind that the funds you put aside in case of a business emergency should be easily accessible and liquid. This means you should not tie this money in projects or other business investments. Business savings accounts in the US usually come with FDIC protection which is up to $250,000 which means your money is safe.
2. For future projects
You can also create business savings account for future business projects or to save for something that will allow you to expand your business, this way you don't need to get into business debt (which you will after to pay back anyway with interest). The money you save can also be put towards marketing and PR for your products and services to expand your customer base.
3. For taxes
Many business owners get caught up in the excitement of making all this cash that they forget all about their taxes. However, when tax season rolls around the IRS will be expecting their cut and you don't want to play with Uncle Sam. A business savings account is a great place to hold money for your quarterly or yearly tax payments. Talk to your accountant about how much money you should be putting away towards taxes - a good place to start is 30%.
How many business savings accounts should you have?
To avoid confusion, separation of assets is important so when it comes to the number of business savings account to have, you can have multiple. For instance, you can have one for taxes, one for emergencies, one for future projects etc. Be sure to keep your day to day transactions strictly to your checking account.