1. Importance of Understanding Your Business Operating Accounts
2. What Is a Payroll Checking Account?
3. What Is a Merchant Account?
4. What Are Money Market Accounts?
5. What Is an Imprest Account?
6. Tips for Running a Successful Business
7. How to Figure Daily Operating Capital?

Keeping track of your business operating account is pertinent to operational success. Most companies will designate at least one account that is used to pay vendors and to deposit customer payments in to. This is referred to a company's operating checking account. Many companies will use checks or debit cards to withdraw money. A company debit card works just like a personal debit card for things, like making purchases and making withdraws at an automated teller machine (ATM).

Importance of Understanding Your Business Operating Accounts

  • Improve cash flow
  • Reduce overhead expenses
  • Maintain funds for payroll activities

What Is a Payroll Checking Account?

An account that is set up exclusively to pay employees and pay payroll taxes is called a payroll checking account. Revenue is not placed in the payroll checking account. The funds are normally transferred from the operating account to cover the payments that will be disbursed at each pay period.

What Is a Merchant Account?

A merchant account may be set up if the business accepts credit card payments and the merchant provider is the only source of deposits for this account. The merchant provider is whoever the business has chosen to use as a provider to allow them to accept credit card payments. There may be withdrawals from a merchant account to an operating or another special payment account if needed.

What Are Money Market Accounts?

Money market accounts can be used for operating and payroll expenses as well, but most money market accounts require a minimum balance. They do pay a higher interest rate and this makes them attractive to companies who maintain a steady higher daily balance in their account.

What Is an Imprest Account?

Generally, an imprest account is used for petty cash. This type of account is designed to always have a fixed amount of cash reserved. An imprest account may be used for payroll or branch accounts. A branch account is a business' multiple location/subsidiaries in various places. Branch accounts are not always at the same bank. This is because many times a bank that a business' headquarters use will often operate where a subsidiary is located.

Tips for Running a Successful Business

To run a successful business, there are several tips you need to follow. The general rule of thumb is that it is wise to have cash in the bank, or at least liquid investments, equal to three to six months of operating expenses. You should look at the month of the year that brings in the least amount of cash, and you should try to keep an amount equal to this at all times. Seasonal businesses will have to allow for slow times, so it is important to have a cushion to cover expenses in the off-season.

When figuring your costs, you should examine how much money it takes to produce the goods you sell as well as the expenses involved to sell your products or services. This is your production cost. Additionally, you should add your overhead costs that are spent each month. Your overhead costs are the expenses incurred each month regardless of how much profit you make.

How to Figure Daily Operating Capital?

To figure your daily operating capital, you can add up all your assets, such as bank balance, inventory value and any outstanding accounts receivable, and then subtract your liabilities, such as taxes, accounts payable, loans, and so forth. Once you have reached this number, divide it by 365. This number is your daily operating capital. If you multiply your daily operating capital by a number you are comfortable with, this will give you a contingency amount.

Once you have money left over in your contingency fund, you are ready to budget for a period of three to five years. You should consider what you want in the next three to five years and if you reach your goal and want to go in business for yourself, then consider making it a reality.

Before pulling out, you should look at some forecast scenarios for the cash flow you have on hand. Look at it from various perspectives, such as the best case scenario and worst case scenario.

In order to sow the seeds of future profitability, executives will ask department heads to identify ways to reduce expenses and curb operating cost. Look for areas that are bleeding money and focus on how to maintain sufficient cash and control who is spending what. Do not focus or question managers on every little expenditure.

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