In the beginning of Profit First by Mike Michalowicz, he suggests we set up 5 accounts: income, profit, owner’s compensation, taxes and operating expenses. Towards the end of the book, there is a whole section on other bank accounts you can set up for specific needs.
For my inventory clients, it’s a great idea to have a “stocking” account. This is where you stockpile away the money to purchase your inventory. The purchase of inventory can be a cash drain. So, from every sale, you should be putting away a portion of the funds to replenish the inventory. This will ensure that you have the funds to cover the next inventory purchase.
Reserve account – this is an account that every business owner should have. Saving 3 months of reserve will help you get through the lean times.
As you know, I’ve struggled a bit with the original 5 accounts… Owner’s compensation being one of them. I struggle with it because I’m a corporation and I pay myself every 2 weeks just like the rest of my team… for me it’s an operating expense. However, in this last section, Mike talks about creating a payroll account. Now that I can get behind. You should have an account where your payroll and payroll taxes are paid through. If you are a corporation, you can add your wages to this account.
Sales Taxes – if you are company required to collect sales taxes, it would be good for you to remember the funds collected are NOT yours and should not be stored in your operating account. Creating a separate account for funds to collect in prior to processing your sales tax return will ensure you have the funds that didn’t belong to you.
Is there a capital expense coming your way? Then how about creating an account just to collect that money. This will ensure that it doesn’t mix with your operating expense and will allow you to purchase that item with ease.
I think you get the idea. If there is something that you struggle with OR want to ensure you have the money for it – then separate it.