Expenses | 10 Jun 2023

Why Opening Multiple Business Transaction Accounts can be Beneficial

Think of bank accounts as financial instruments, each playing an important role within your business. While it may have sufficed for a while to manage your financial affairs through a single business transaction account, as your business expands, there may be advantages to separating funds into multiple accounts based on their intended use.

By using multiple accounts, you can potentially streamline your financial operations, particularly when the tax season comes around. Separating funds into distinct "buckets" or "silos," can help to more effectively budget for upcoming or unforeseen business expenditures. However, before adopting this approach, it is important to evaluate the accompanying fees and charges associated with having multiple accounts. Research the monthly account fees and charges related to deposits and transactions so that you can make an informed decision.

Below are four reasons why having multiple business transaction accounts can improve the organisation of your business:

Separation of transactions for tax purposes

It’s simple: separating your business funds into distinct accounts makes for cleaner accounting. For a clearer look into the flow of funds in and out of your business, establish separate accounts for each purpose, such as:
• Everyday expenditures (purchasing equipment or office supplies)
• Receipt of client payments
• Payroll
• Future projects
• Emergency funds

The result will be clear bank statement entries per category, which will also help make your write-off calculations easier to distinguish.

Effective cash flow tracking to prevent overdrawing

Tracking cash flow can be a tedious task, yet it is indispensable to ensure that no financial oversights occur. This is where using multiple accounts can prove invaluable. When dividing funds into ‘buckets’, commit to maintaining a cushion of funds in the account designated for outgoing expenses, such as utility payments. Being proactive about the use of an account ensures protection against unplanned, large, one-off expenses that might otherwise lead to overdrawing, incurring additional fees, or leaving invoices unpaid, all of which could hurt your business and reputation.

Draft a more accurate budget

Gaining a clearer understanding of how money flows in and out of your business will enable more accurate budgeting for recurrent or upcoming expenses, compared to sifting through hundreds of transactions in one account statement. For instance, you may identify that you spend around £2000 per month on equipment. Knowing this, you can better anticipate similar future purchases.

Enhanced Security

Security is a paramount concern for business owners, and for good reason. Eight out of ten mid-sized firms in the UK experienced fraud within the past five years. In the unlikely event that one of your accounts becomes compromised, becoming a target of scammers, for instance, the repercussions will be less severe than if all your funds were in a single account.

What to Look out for

In addition to the associated fees and charges, it is important to understand that managing multiple accounts will require greater admin, as each should be regularly monitored to ensure they serve their intended purposes.Remember, it is possible to have too many business transaction accounts. If managing multiple accounts becomes too difficult or costly, consider consolidating some accounts as a means of reducing the administrative workload and associated fees.

Looking to further streamline your transactions?

Get multiple subsidiary accounts from your main account and easily reconcile your payments. The Caxton automated payments platform allows for instant, secure and reliable payments across the globe, saving your business from time and resource wasting manual accounts.

Take it a step further and bring your subsidiary accounts into your own application with the CXTN API Suite.