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Opening Your Capital Allocation Account

capital allocation financial freedom financial management Oct 15, 2021

After creating your separate accounts for expenses, namely Transactions Account, Tax Account, and Safety Net Account, now it’s time for you to open and create your Capital Allocation Account.

What is Capital Allocation Account?

Your Capital Allocation Account contains all the remaining cash that can safely be used to invest or payout to shareholders. This also serves as your business savings account where you can use it to save your earnings for future business use, such as investments and payouts. You can quickly and easily access money from your Capital Allocation Account when you need it.

Having a Capital Allocation Account shows that your business has healthy cash reserves.

How much should I put in my Capital Allocation Account?

Figuring out how much money to put in your Capital Allocation Account is easy because this account should carry all the remaining cash of your business. 

Why do I need to open a Capital Allocation Account?

Opening a Capital Allocation Account has its advantages. For one, it lets you earn interest. You can earn extra money just by keeping cash in a business savings account. The interest may be low, but it’s better than letting your money sit idly by.

Opening a Capital Allocation Account is beneficial because as a business savings account, your Capital Allocation Account is protected in the bank. Savings accounts are insured by the Financial Claims Scheme (FCS) which provides protection to depositors of up to $250,000 per account-holder per authorised deposit-taking institution (ADI) (bank, building society, or credit union) in the event of the ADI failing.

Most importantly, opening a Capital Allocation Account is beneficial because it helps you maximize your Return on Equity or ROE for shareholders. With a Capital Allocation Account, you would have knowledge as to the amount you can use to buy assets, how much you can use for research and development, for scaling up your current business operation, for your payment of debts, acquisition of other businesses, or to return money to shareholders. When you structure your account this way, you, as a business owner, would know how much money you have to work with in order to maximize the company’s ROE.

Need assistance on how to structure multiple bank accounts to maximize your company’s ROE? Contact us here at Stream Accounting!  

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