First Month - Checking and Credit Card Accounts

Let's now jump into your checking and credit card accounts. We're in the subject of your first month, where you're doing a lot of setting up of accounts and systems and processes. This one is important. Now, ideally, you will have set up your checking and credit card accounts before you closed on your practice and stepped into your first day of ownership. But this still relates to that sort of first month where now you're depositing money collections into your checking account, and you're also going to be running payroll and expenses through your checking account. So this is an important subject, and there's really six areas I want to talk about here. Number one is that generally speaking, the lender or the bank that lent you money to acquire the practice, guess what? They want you to have a checking account with them. You know, these banks love it when they have checking accounts, because if there's checking accounts, there's typically some balance in the checking account. And if there's cash in the checking account, then that bank gets to use that balance or those funds to go and lend out on home loans or business loans or, you know, do whatever the banks do so that they can earn interest and income, because that's how banks survive and that's how banks thrive. So they want you to have a checking account balance. It also allows them to monitor a little bit your cash balance and how you're doing financially. So they virtually all require that. There might be a few exceptions, but they all require it. So if Wells Fargo or Bank of America or Citibank or any banks have you set up or lend you the money, you're going to have a business checking account with that bank. Now, a lot of times what they'll say is you have to operate all of your expenses through that checking account. Sometimes they just say you just got to set that up. And. And if you have a Wells Fargo across the street from your practice, and it's just very convenient for you to go and deposit your cash at that Wells Fargo across the street, then you may want to go with Wells Fargo for your everyday checking, or Citibank or Chase or, you know, bank of America, whatever bank that is. I'm staying out of endorsing any one bank. There's so many good people at different banks out there available to help you. But I hope you see my point there, that a lot of times you need to go with the one that's really convenient for you since you don't want to drive five miles down the road in order to do your deposits of your cash. Now, what the banks will do is they will allow you to set up what's called a check scanner. And the check scanner, you can take your patient checks and you run it through and it'll deposit remotely those checks into your account. But you still got the cash that needs to be deposited. You can maybe limit that to once a week or something. But really, really you need to be depositing that cash and you should be. Because if the IRS audits you and they find out you're not depositing your cash, well, that's going to get you in some trouble. So be very careful with that. Sometimes they're happy if you just set up the account and pay for the loan out of that account. And so if you set up a checking account with a different bank, then you can make a monthly automatic transfer, enough to cover the loan payment. I've seen that before and that can be okay as well. My preference would be the fewer accounts the better. And I'm going to talk about that here as I, as I go on. Number two is your loan. Now a lot of these banks want what's called full service banking, where you have your checking account, preferably a credit card account, you do your merchant processing with them, you might have a line of credit with them and you have this full sort of relationship with, of accessing capital from the bank and storing your cash there through the accounts. Banks like that, Banks like that a lot because the more transactions and the more cash you have with them, then the more they get paid. And that's totally fine. And a lot of times in order to incentivize you to have a full banking relationship with them, they will offer to lower your rate a little bit on your loan, on your practice loan. So they'll give you a standard rate and they'll give you a full banking relationship with rate as well. And sometimes that can be a great thing. But you have to look carefully at the underlying services that they're wanting to provide and what those costs are. For example, merchant servicing, which I'm going to talk in a follow up module here. But merchant servicing is an area where there's, it's very opaque, the pricing and there's a lot of deceptive sales practices. There's a lot of good ones too. But it's one of those things, you can't just take it because it's the only option you feel is being given to you. You got to research that a little bit. So that's your loan. And what the banks look for is that full banking relationship. The third thing is Savings account and really your checking account. And here's what I recommend. Simplicity, simplicity, simplicity. It's very common. I get a new client, or we here at practice CFO get a new client. And they come in and they have nine different accounts and, and they have different purposes, and they have eight different credit card accounts. And they were just sort of stacked up over the years for different reasons. And yet there's no rhyme or rhythm to the way it's all being used. What I believe is that simplicity is usually the best solution. And so one checking account and maybe one savings account is probably what you need. A savings account, you can put in maybe 30, 40, $50,000, depending on the size of your practice, and you just park that money there, knowing it. It's a rainy day fund for your business, totally separate than your emergency reserve fund outside of the practice. This is a practice emergency reserve fund. Now, on occasion, there may be good reason to set up a second checking account or a third if you have a designated purpose for those. But let me emphasize, you don't need.

There's no mandate out there that says you need to have a checking account for your payroll. You need to have a checking account to receive your collections. You need to have a checking account for your bill pay to pay your bills. No, you can have one checking account. What happens is you end up having to spend 10 minutes every day just making sure you're tracking money so it's all in the right place at the right time so you don't go negative in any of the checking accounts. And it's just sort of, just sort of a bother. So our recommendation is you have your one checking account, you have enough cash in there that you're not worried about something not clearing, like a check out standing, for example, and it's going to ebb and flow a little bit, especially as payroll goes out. But you have enough in there that you sleep well at night and you just, you know, you just keep it simple. All right, Number four is now your credit card. Generally one credit card, maybe two if you have an Amex. I know some places don't take Amex, so maybe you go for another one. Just so you know, at practice cfo, we got one checking account and we got one credit card account, and I have it at the same place as my personal account so that I can see it all in one login and make a transfer as a draw in a matter of seconds if I need to. I love the simplicity of doing that. So that's your credit card. Now when you first form your corporation. You may need to build up some credit. They may only give you 10, $15,000 as a limit on your credit card, and that doesn't even cover your supply bill for a couple months. So you need to constantly be asking the credit card company to be raising the limit so that you can be putting more on the credit card. And then of course, as a financial planner, what am I going to say? That's right, pay it off every single month, that credit card. It can be an insidious thing to let it just slowly build up. Next thing you know, you got 80, $90,000 on your credit card and it's going to take you a long time to, to pay that down. Number five, your emergency preparedness. Here's what I would say. Even though I recommended having a savings account with perhaps a little bit of money in there, really a line of credit is great for an emergency reserve. Now, not all banks are allowing lines of credits or offering lines of credits, but if you can, with your bank, get a line of credit and you may need to pay a few hundred bucks a year just to keep it open. But it's a great way to access funds in a moment of emergency. And we're coming out of the coronavirus era, there was clearly a moment of emergency. And the line of credit is something that can be tapped into to sort of help you weather the storm of whatever that storm is that's hitting your practice. So I like the idea of having a line of credit even if it just stays at a zero balance year after year after year. And lastly, number six, credit card rewards. So going back to credit cards a little bit, you have cash back and then you have rewards. This is sort of a personal preference. But don't get a bunch of credit cards just so you can get various types of rewards. That's letting the tail wag the dog. Doesn't make sense. Again, keep it simple. Now, whether you want cash back or rewards, up to you. But keep this in mind. Cash back that's deposited back into your account.

Ends up being taxable income rewards. Technically it's supposed to be taxable income. So if you have $5,000 of rewards and you use that to go take a trip to Hawaii, technically that's supposed to be income, but in reality what happens is it just sort of is off the books and nobody even notices what's happening and you end up not paying taxes on that, I don't know, $5,000 benefit.