Should businesses have multiple checking accounts?

It’s important to open a business checking account to manage your business finances separate from your personal finances. Your business account also helps make accounting easier, especially when tax season rolls around.

Business checking accounts are primarily used to pay bills and expenses, as well as deposit the income you receive from customers. Some checking accounts also:

• Let you set up automatic payments to your vendors for monthly bills
• Sync with your accounting software to streamline bookkeeping and help eliminate manual data entry errors
• Offer a line of credit that integrates with your account (approval required)

With all the advantages that business checking accounts provide, it’s a straightforward decision to open one. But does it make sense to have more than one business bank account?

Why would I want multiple business bank accounts?

One common reason for having two or more business bank accounts is to allocate funds for different purposes. Many small business owners find it easier to keep money separate for day-to-day expenses, payroll, tax payments, and emergencies. By keeping the money separate, you can be sure you’ll have enough to cover each expense, plus leave your emergency fund untouched.

However, some business checking accounts feature sub-accounts, which let you separate your finances in a handful of ways––so you can still effectively allocate your funds for the appropriate uses. The best business checking accounts offer sub-accounts with designated account numbers, meaning they act as separate accounts under your main account. With unique account numbers, you’re able to control exactly which sub-accounts your vendors can bill to protect the money you set aside in your other sub-accounts for payroll, taxes, and emergencies.

If you find an account that offers sub-accounts, that could be a great alternative to having multiple checking accounts for your business.

The pros and cons of having multiple business checking accounts

Opening more than one business checking account can have its benefits, but it can present some problems, too.

Advantages

• It’s easier to earmark funds for specific purposes. As mentioned above, some business checking accounts even offer sub-accounts under your main checking account that have their own account numbers.
• Preparing for tax season is simpler. If your business has multiple bank accounts, your accountant will spend far less time analyzing entries at the end of the tax year. 
• Every business should have a cash buffer. This extra liquidity could be a lifesaver if you run short of funds, and the best place to keep your emergency stash is a separate bank account or sub-account.
• Some high-yield business checking accounts allow you to earn a high interest rate on the balance in your account. There’s no need to move your excess cash to a separate savings account. 

Disadvantages

• Monitoring several accounts could be a headache for your bookkeeper. Transferring funds between them and keeping track of every transaction could take extra effort and processing time.
• If you don’t pay adequate attention to each bank account, it could lead to errors in your financial records.

• Multiple accounts could mean that you’re required to pay fees for each. And if each account requires you to maintain a minimum balance, you could lock up a significant sum of funds in your different bank accounts. 
• Opening multiple bank accounts and keeping an eye on them could be considered a waste of effort, especially for smaller companies. It could make more sense to keep things simple with a single account and focus on growing your business.
• The accounts you open may have different transaction limits. So, you would need to divide your funds among them and periodically move your money around to comply with each financial institution’s rules. In effect, you would be needlessly adding a layer of complexity to the fund management process, not to mention potentially adding unnecessary fees. 

How many bank accounts should my business have?

There’s no correct answer to this question. For some small business owners, it’s a good idea to open several business checking accounts, each with a specific purpose. For others, one account is all that’s needed––and if your account lets you open sub-accounts, you may have the best of both worlds.

Before you open an additional business checking account, take a minute to think carefully about what you’re going to use it for. You’ll need to spend more time handling your bank accounts, and the chances of making an error may increase. 

Thankfully, there could be a better option. Try and look for an account that does everything you need it to do. In fact, this is one of the best time management tips for a small business owner. If you can find an ‘all-in-one’ business checking account, there’s no need to open multiple accounts.

How to find the best checking account for your business

Here’s what you should look for when you’re choosing a business checking account:

• Transaction limits: Check whether the account allows you to make as many deposits and payments as needed. When you’re making this estimate, consider your anticipated growth and how that can impact your volume of transactions.
• The opportunity to earn interest: The best checking accounts let you earn interest on the balance you maintain. If you shop around, you could earn as much or even more than you would in a savings account. Some interest-bearing accounts may have requirements or activity goals you’ll need to meet to qualify.
• No monthly fees: You don’t want any unpleasant surprises after you open the account. Make it a point to understand the fee schedule and how it compares to other accounts.
• The ability to open sub-accounts: If the account provides sub-accounts linked to the main account, you don’t need to open multiple checking accounts. Plus, if your account earns interest, you should be able to earn on the combined balances of your sub-accounts and main account.
• Convenience and ease of use: Spend time exploring how the account works. The best accounts make everything simple and intuitive, especially if you’ll be using an online dashboard.
• Accounting software integrations: Find out if your account can connect directly with your accounting software to sync up transactions, payees, and more.
• Bill pay solutions: The best business checking accounts integrate seamlessly with bill pay tools so you can save your time managing and paying bills.

The bottom line

Before deciding whether to open one checking account or several, consider the pros and cons carefully. Do the benefits that multiple accounts offer outweigh some of the hassles involved? Will it make your life or your accountant’s life easier or more difficult?A good compromise may be to open an all-in-one checking account with sub-accounts. This way, you can enjoy the ease and convenience of a single account while separating your finances in a way that makes sense for your business.