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Let’s Talk About Business Bank Accounts, with Erik J. Olson


Episode #1341

Erik read the book Profit First by Mike Michalowicz which has a different way of managing finances. In this episode, Erik shares about the different bank accounts you should have in business.

September 27, 2022

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Episode Transcript

Erik J. Olson (00:01):
Let’s talk about business bank accounts. What is happening? This is Erik J. Olson. So, you know, I, I got this idea for this episode, cause I was looking through my book Million Dollar Journey, by the way, free interested us on Amazon Million Dollar Journey by me, Erik J. Olson. And one of the literally just kind of like flipping through it and I stopped and it was about bank accounts and I’m like, oh God, there’s so much to talk about when it comes to bank accounts. And here’s what I wanna explain. It’s not that it’s the most exciting topic in the world, but I think it’s very important as an entrepreneur, as an operator of a business. If you have access to the finances, if you’re making financial decisions, your bank accounts are pretty critical. Now of course they can’t go to zero or negative. So you have to make sure you have enough money.
(00:51):
That’s a topic for a different episode. But what I mean is like a lot of times as an entrepreneur, you’ll log in for your bank, maybe on a daily basis, maybe multiple times a day to check the balance. And based on the balance, you’ll make some decisions, right? And so what you don’t do all the time is consider, well, how many, like, let’s say you have a high, a relatively high balance for yourself. You may make some like some decisions to push the business force to spend some money, but you, you probably haven’t considered like, well, what bills are scheduled? But you look at the, at that number and you either make some decisions to move the business forward, take some money outta the business, or just the opposite. If the balance is relatively ill, you’re like, oh my gosh, we’re going outta business. We need to sell our asses off and, and also call every client that owes us money.
(01:36):
Like we gotta get money in. Right? So you, you have these different reactions based on the balance. And one of the problems that we had at Array Digital here in the beginning is we had one bank account. It was called operating expenses and it had all of our money. And because it had all of our money in there, we were always like, ah, like when Kevin and I were like, Hey, maybe we could pay ourselves a little bit, like take a distribution. We were like, I don’t know, man. Like I think like we got to pay for all the stuff we have to pay for business taxes. We gotta pay for employees. And so we’re always, always like worried about taking money outta the business. We read this book called profit first and they have a different way of managing your finances in particular. Your bank accounts, the, the, the key here is the bank accounts.
(02:23):
And so with profit first Mike Michalowicz is the author. He acknowledges that. What I, what I just said, like as an entrepreneur, you log into your bank account and you look at the balance of your bank account and you make decisions, right? It’s natural. You’re not, you’re, you’ll probably never break that. I know I haven’t broken it, but I have a, a process now, which is profit first, where there’s multiple bank accounts and each one serves a purpose. So I wanna read to you our bank accounts, and it’ll give you a sense of how we do this. So the first bank account is called client ad spend. So when we do advertising I’ll, I’ll use nice round numbers. Let’s say that a client pays us $10,000 for advertising. And out of that, we take $2,000 for our fee. Well, the $8,000 is money that we accept into our bank account, but it has a very particular purpose client ad spend.
(03:18):
We’re gonna spend that money on Google ads, Facebook ads, stuff like that. So that $8,000 would go into client ad spend. And then as we’re spending money on Google and Facebook, we would pay it out of there. It’s basically not our money, right? So I, I don’t want that in our OPEX account, which is the next one I’ll talk about OPEX stands for operating expenses. So that’s kind of like your general account. And so most of the money goes to OPEX, but then you still have these other bank accounts for other purposes. So like client ad spend is one of ’em. The next one is petty cash. I just got a new petty cash debit card today. And, and what that’s for is like, these are things that we don’t budget for. These are just miscellaneous things. When Kevin and I go out to lunch together, we’ll pay for it on the business and we’ll use our petty cash card, right?
(04:06):
Basically we, we fund it with maybe like a hundred bucks a week, something like that, not much, it’s just miscellaneous stuff. And it’s basically for me and Kevin to use it for miscellaneous stuff. It’s not a lot of money. We’re not gonna go, you know, buy some, some big piece of equipment or pay people with it. It’s just a little bit, we push it off to the side, into an account called petty cash. Him and I both have debit cards. The next is income. The income account. When we get paid, all the money goes into income. It all, all the new money goes into income. And the reason that is because twice a month, we will disperse or just disperse, I should say, or distribute from that income account to these other accounts. I’m explaining based on percentages. Now, if you want more information about that, I’ve got a previous episode about profit first, or you can go get the book profit first or just Google profit first and figure out how that distribution works, but go back in our backlog.
(05:03):
We’ve got hundreds shoot, probably thousands of episodes now. And I, I definitely talk about that multiple times. The next is called profit. The next business banking account is called profit. And that’s where like EV when we do that distribu or the disbursement from income to the other accounts, we say, all right, here’s a small percentage of the revenue that was in income. That’s gonna go towards a bank account called profit. And that’s what Kevin and I take our quarterly distributions from. So the Mo the money goes in there little by little, and then after a quarter, we look at it and we’re like, okay, well, there’s, again, I’ll just use round numbers. There’s $10,000 in here. Let’s distribute $5,000 to ourselves as a bonus, right? This is our profit. This is how we share profit from the business with each other owners tax. This is a very important one.
(05:59):
As business owners, we have to pay taxes, right? So even if the, even if we don’t get the money, personally, if the company makes a profit, we individually personally have to pay taxes on what the business does. So we have to take some of our revenue and we have to shove it into the owner’s tax account and just let us sit there and build up over time. And then when it’s time to pay the government, our state, or uncle Sam, we pull from that bank account. It’s not our money. It’s very similar to like client Aspen, not our money. I don’t even really look at that. I don’t really care. How much is there? Just as long as there’s enough there to pay my taxes, license and insurance now, early on our business license tax, this is something we pay to the city and our business insurance bill, both hit, I believe it’s in February, maybe March at the same time.
(06:54):
And it was like 7,000 bucks. And we’re like, oh my gosh, like, we didn’t plan for it the first year. Right. And when that happened, we’re like, you know what? We’re not making that mistake again. Now we plan for it. So every, like throughout the entire year, even though we only pay that bill once a year, those two bills once a year, throughout the entire year, we’re adding money to that bank account. Cuz we know it’s very predictable. We know those bills are coming and they get bigger and bigger and bigger as Array gets bigger. So we put money aside. It’s not much, I don’t know how much it’s couple hundred bucks, twice a month. And then the last, one’s a big one, which is payroll. Gotta make sure that we pay our people. Right? So a lot of money goes into payroll cause we have a pretty big payroll expense at this point.
(07:41):
So every two weeks we pay our folks every two weeks before that we put money into it. We gotta make sure that money’s there. So the OPEX is the one that’s kind of like got flexibility. But like when it comes to payroll, I gotta pay that right. When it comes to license, I insurance, I gotta pay that profit. I’ve got flexibility. There owner’s tax. That varies based on like whether we’re making money or not making as much money or whatever. So lots of different accounts. What we got here, I covered eight accounts in the past. We had more. Now we’re kind of down like, like we had more bank accounts before, because what we’re trying to do is move this money around in our bank so that we know when we look at that bank account, what the purpose of that money is, and we can make a lot better decisions based on that. So I hope that was helpful. If you really want to dive into this Google Profit First or get the book by, by Mike Michalowicz or search, go to journeyto100million.com and you there’s a search feature. I believe where you can search or maybe go to your podcast platform, search Journey to $100 Million for profit first. And you’ll

Erik J. Olson (08:54):
Find a bunch of episodes where I talk about it or Kevin talk about it. So if you have any questions, hit me up on Instagram, you can always find me there. My handle is erik.j.olson. That’s E R I K dot J dot O L S O N oh, one more thing. We are, we are growing this podcast. I need your help in growing this. We’ve put out this podcast for years. I think we’re on year number four right now we don’t run as we don’t charge. We just give our best material away. I could use your help. If this has helped you at all, I could use your help with a referral. You know, another entrepreneur, you know, another business owner, you know, another operator. Would you do me a favor? If you got any value out of this episode or previous episodes, would you tell him or her about the Journey to $100 Million? Would you take a screenshot maybe of what you’re listening to and post it on a story and Instagram hyperlink it to journeyto100million.com. Would you help spread the word if you would. I appreciate it. If you don’t, you owe me. All right. That’s it. Thanks.

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About The Hosts


  • Erik J. Olson is an award-winning digital marketer & entrepreneur. The Founder & CEO of Array Digital, he is also the host of the Journey to $100 Million Flash Briefing and daily podcast, and the organizer of the Marketers Anonymous monthly meetups.

  • Kevin Daisey is an award-winning digital marketer & entrepreneur. He started his first company when he was just 23, and is the Founder & CMO of Array Digital. Kevin is the also the co-host of the Journey to $100 Million Flash Briefing and daily podcast, and the co-organizer of the Marketers Anonymous monthly meetups.

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© Array Digital LLC