The cash you use to run your business resides in different accounts. To manage your cash flows effectively, you generally need to have cash in the following types of accounts:

  • General operating account: Used for processing the large majority of a business’s normal and customary transactions, such as paying vendors and receiving customer payments.

  • Payroll account: A separate bank account for processing payroll activity. A payroll account is funded with just enough to cover the next payroll.

  • Investment account: Various names apply for this type of bank account, including savings, money market, interest bearing, and others. The basic idea is that when a company has excess cash balances, the cash is “parked” in an account that can generate interest or other investment earnings.

  • Restricted cash accounts: A restricted cash account can be any one of a number of different unique bank accounts that hold a cash balance for a particular use. For example, it could be a trust account set up to segregate cash that can be used only for a very specific purpose.