Being organized and having the right accounts setup as a business owner is crucial.
Way too often do I see business owners commingling personal and business accounts, not using the right retirement accounts, only using checking accounts, etc.
In this weeks blog post, I am going to walk you through all the accounts you should consider having between personal and the business.
Business Checking: I typically tell people to use a brick and mortar bank they can show up to if any problems exist. However, there are a ton of good online options like Mercury, Novo, etc. This account should be where you operate your business from, pay off credit cards, etc.
Business Savings: I typically have people use an online platform like Flourish (through us) or a different bank that has high yield savings accounts. Many businesses are holding 6 figures or more in cash and you should be getting a yield on those dollars. It typically makes sense to have multiple different savings accounts for different goals like:
Business Retirement Account: Maybe in the first year or so, you do not need a business retirement account unless you are doing really well. But as you get going you will want to set one up. The best options are:
You will want to set these up somewhere with a good list of investment options, low fees, and good tech. Retirement accounts are a great way to defer tax or do Roth and pay tax today but get tax free growth.
Business Credit Card: This is not an account so to say, but having a business credit card often makes sense. It allows you more protection, gives you cash back rewards that can be used in your personal life, and allows you to pay off slower if cash flow is taking a bit to hit your account.
Business Line Of Credit: This one is optional. A line of credit can be great for the right business but also bad if you take on too much risk. I have multiple clients who use this to buy product to ramp up for big sales cycles and it's a game changer. Just be smart with how you use them. One of the big benefits of a line of credit is that the interest is usually way lower than a credit card.
Personal Checking Account: Very similar to business checking account, I typically recommend using a brick and mortar bank that you an go into. You typically just need one personal account where all income goes into, credit cards are paid down from, and other expenses get pulled from.
Personal Savings: Your savings account should be separate from checking account and should be somewhere getting a yield. I personally use Ally, but some other good ones are Marcus, Betterment, Capital one, Sofi, etc. You want multiple of these for emergencies, short term goals, tax savings, travel, etc. Save for everything separately.
Traditional IRA: Most high income earners should have a traditional IRA Simply to do Backdoor Roths. But... make sure you have no other IRA money anywhere or this becomes taxable (this includes a SEP IRA).
Roth IRA: Getting tax free money invested for the future is incredibly impactful. If you have extra income, doing Backdoor Roths yearly can be a great move.
Taxable Brokerage Account: A taxable account is a great investment account to use. You can get long term capital gains rates, put as much money in as you want, take it out whenever, etc. Use this for your extra investing and to help fund mid term goals.
Personal Credit Cards: I typically recommend only having 1 or 2. 1 can keep your life very simple. 2 can be used if you want to split up necessities and wants to keep track of spending on those variable expenses in an easier way.
HSA: HSA's are the most tax advantaged accounts out there. If you have a health plan that allows for it, using an HSA and investing it for the future can be incredibly impactful.
FSA: if you don’t have an HSA, using an FSA on a pre-tax basis to pay for yearly health care costs can make a lot of sense. Use the tax advantages to your benefit.
529: If you have kids and are investing for college, 529 plans can be great since they offer tax free growth and use on college/educational expenses. And in some states you even get a tax deduction or credit.
This is a pretty comprehensive list of how you should structure your finances and what accounts to have. Hopefully this helps you get your own financial life structured better.