Knowing what I know now, I would have my personal account of which I would pay myself out of the company net revenue. There has to be a company account to receive and dispense funds. After that, then I would hold a reserve contingency account (based on the amount of operating funds to continue in business if all revenues were to cease – the business had to go into “hibernation”). There should be a second account kept liquid in the event a good opportunity comes up, but has to be jumped on right away. For example, I did come across a deal where I netted 70K, but I had to be able to put 50K in escrow in 3 days. Thankfully, although I was not structured properly, I was able to make it happen, but I had to mask to the other side that I was a little sloppy.
If you happen to earn a real estate license, one of the worst offenses is co-mingling client funds, meaning mixing up your personal money and client’s money into one pot without the strictest of records. So why even start? Separate accounts for every activity even of your own. Hold a separate account for payments made out for goods and services such as contractors, attorneys, and inspectors, anything that would fall into what is known as “Cost of Goods Sold”. This is especially important during tax time, as all of the payments coming out of this account should be tax deductible as either part of your production process or preparing your property for sale. It’s a great help to have a little knowledge of accounting ahead of time to make your records easier to discuss with your accountant. You must know where every dollar is going in order not to get yourself confused, a crisis pops up, and bang, now you can’t account for your funds properly.
On the other side, it’s a great way to protect yourself from enemies as well. Personal example: I was accused of something to the effect of co-mingling funds even though I wasn’t licensed at the time and had no responsibility to account for a crime that never happened. What was really taking place in hindsight was outsiders that had heard I was making good money abused their connections to authority to attempt to force me to open my books, presumably to lighten my pockets if possible. I didn’t keep the most exact records, but by having a semblance of the idea of separate accounts, it became a dead end for them as I was able to show that funds spent and funds disbursed did add up properly.
Here is a list of account structures, make changes as needed:
General Business Account for Receiving Deposits
Personal Account to Pay Yourself
Cost of Goods Sold (pays for goods & services directly related to business activities)
2 Contingency Accounts, one for emergencies that goes untouched, one for spur of the moment opportunities.
Account to hold funds if you bring outside parties or partners on board.
