35 posts tagged with "Finance"

Deciding where to park your small business's cash reserves can feel like a balancing act between earning a decent return and keeping funds accessible. The two most common, safest options are high-yield savings accounts and certificates of deposit (CDs). Each serves a distinct purpose, and choosing the right one depends on your timeline and liquidity needs.

Let's break down the differences, explore the nuances of FDIC insurance for businesses, and then dive into practical Beancount patterns to track it all cleanly.

TL;DR: The Quick Summary​

• Savings / Money Market Deposit Accounts (MMDAs): Best for liquid, everyday operating cash and near-term tax payments. Their interest rates are variable. While the Fed removed old withdrawal limits, banks can still set their own rules.
• Certificates of Deposit (CDs): Offer a higher, fixed yield if you can lock up cash for a specific term. Pulling money out early triggers a penalty.
• Safety First: Both are FDIC-insured up to $250,000 per depositor, per bank, per ownership category. The rules differ slightly for sole proprietorships versus corporations.
• Over the Limit?: For balances above $250,000, services like an Insured Cash Sweep (ICS) can spread your funds across multiple banks to maximize insurance coverage while you maintain a single banking relationship.
• Beancount Users: Skip to the end for journal patterns to model CDs, accrue interest, and handle early withdrawal penalties correctly.

What Each Account Does Well 🏦​

High-Yield Savings / Money Market Deposit Accounts (MMDAs)​

Think of these as your business's primary cash hub. They are designed for safety and accessibility.

• Liquidity: This is their main advantage. You can withdraw funds anytime without penalty. It's important to note that even though the Federal Reserve removed the old "six convenient withdrawals per month" rule (Regulation D) in 2020, individual banks are still free to impose their own transaction limits or fees. Always read your account's terms.
• Insurance & Safety: Savings and MMDAs at an FDIC-insured bank are covered. Don't confuse these with money market mutual funds offered by brokerages, which are investments and are not FDIC-insured.
• Best Use Case: Perfect for your operating cash buffer (3-6 months of expenses), funds set aside for near-term payroll or taxes, and your general emergency reserve.

Certificates of Deposit (CDs)​

CDs are a deal you strike with the bank: you agree not to touch your money for a set term (e.g., 3, 6, 12 months), and in return, the bank gives you a higher, fixed interest rate.

• Yield Certainty: The fixed rate is a key benefit, protecting you if market rates fall. The flip side is the penalty for early withdrawal. If you break a CD within the first six days, federal rules mandate a minimum penalty of seven days' simple interest. After that, the penalty is determined by the bank's own policy (e.g., three months of interest).
• Insurance & Safety: CDs carry the same FDIC insurance as savings accounts, up to the same $250,000 limit.
• Best Use Case: Ideal for cash you are certain you won't need for the duration of the term. This could be money earmarked for a tax payment nine months away or a reserve for a capital expenditure you plan to make next year. CD laddering—opening multiple CDs with staggered maturity dates (e.g., 3, 6, 9, and 12 months)—is a popular strategy to balance higher yields with regular access to cash.

FDIC Coverage: The Practical Bits for Businesses 🛡️​

The FDIC insurance rules are straightforward but have important distinctions for different business structures.

• The Headline Rule: You get $250,000 of coverage per depositor, per insured bank, per ownership category. All your deposits (checking, savings, MMDAs, CDs) within the same ownership category at a single bank are added together to determine your coverage.
• Sole Proprietorships: Business accounts for a sole prop are treated as the owner's individual accounts. They are combined with the owner's other personal single accounts at that same bank for one $250,000 insurance limit.
• Corporations, LLCs & Partnerships: These legal entities are insured separately from their owners' personal accounts. The business itself gets its own $250,000 of coverage per bank.
• Need More Coverage?: If your business holds more than $250,000, you don't have to juggle multiple banking relationships. Ask your bank about an Insured Cash Sweep (ICS). This service automatically distributes your deposits across a network of other FDIC-insured institutions, keeping all your funds insured while you manage them through your primary bank.

When a Small Business Should Favor Each Option 🤔​

• Choose a Savings/MMDA when…

  • Your cash flow is unpredictable or you have frequent, variable expenses.
  • You're building your 3–6 month operating expense buffer.
  • You need immediate access to funds and are willing to accept a variable interest rate.

• Choose a CD when…

  • You have a surplus of cash that you can confidently lock away for a fixed term.
  • You want to lock in a specific interest rate and protect your return from market fluctuations.
  • You are building a CD ladder to create a predictable schedule of maturing cash.

A blended approach is often best: keep your immediate operating cash in a high-yield savings account and place longer-term reserves into a CD ladder or short-term Treasuries.

Important Fine Print to Read 📝​

• Early Withdrawal Penalties: These are specific to each bank and will be disclosed in your CD agreement. The best way to avoid them is to plan your ladder carefully so you don't have to break a CD.
• Transaction Limits on Savings: Just because the federal rule is gone doesn't mean your bank won't charge you a fee after a certain number of monthly withdrawals. Check your account agreement.
• Taxes on Interest: Interest earned from both savings and CDs is generally taxable income in the year it's credited to your account. You'll receive a Form 1099-INT. If you pay an early withdrawal penalty, it is deductible. The penalty amount appears in Box 2 of your 1099-INT and is typically treated as a business expense.

Alternatives Worth Knowing​

• Treasury Bills (T-Bills): These are short-term loans to the U.S. government that mature in 4 to 52 weeks. They are considered one of the safest investments in the world, backed by the full faith and credit of the U.S. government (not FDIC insurance). They are highly liquid and can be a great option for cash reserves exceeding FDIC limits.
• Money Market Mutual Funds (MMFs): Offered by brokerage firms, these are investment products, not bank deposits, and are not FDIC-insured. They invest in high-quality, short-term debt and aim to keep a stable value of $1 per share, but this is not guaranteed.

A Decision Cheat-Sheet ✅​

Beancount: How to Model Savings and CDs 💻​

For those of us managing our business finances with plain-text accounting, here are some simple, effective patterns for tracking these accounts in Beancount.

1) Chart of Accounts​

First, ensure you have the necessary accounts. Adjust the names to fit your own chart.

Assets:Bank:Checking
Assets:Bank:Savings
Assets:Bank:CD:12M              ; Create a unique account for each CD
Assets:InterestReceivable       ; Optional, for monthly accruals
Income:Interest:Bank
Expenses:Bank:EarlyWithdrawalPenalty
Documents:Bank                  ; To link statements and agreements

2) Open and Fund a CD​

When you open a CD, it's a simple transfer from one asset account to another.

; Open a 12-month CD for $50,000
2025-01-15 * "Open 12M CD @ fixed rate"
  Assets:Bank:CD:12M              50,000.00 USD
  Assets:Bank:Checking           -50,000.00 USD
  document: "Documents:Bank/CD-Agreement-2025-01-15.pdf"

3) Recognize Interest: Two Methods​

Option A: Recognize Interest Only When Paid (Simple)​

If your bank credits all interest at maturity, this is the easiest method.

; CD matures; principal + interest paid to checking
2026-01-15 * "CD matured; interest credited"
  Assets:Bank:Checking              52,375.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Income:Interest:Bank             -2,375.00 USD

Option B: Accrue Interest Monthly (Better for Reporting)​

For more accurate monthly financial statements, you can accrue the interest earned each month.

; Monthly accrual (illustrative amount)
2025-02-15 * "Accrue CD interest"
  Assets:InterestReceivable            197.40 USD
  Income:Interest:Bank               -197.40 USD

; At maturity, reverse the receivable when the cash arrives
2026-01-15 * "CD matured; settle accrued interest"
  Assets:Bank:Checking              52,375.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Assets:InterestReceivable        -2,372.80 USD
  Income:Interest:Bank                 -2.20 USD   ; true-up for rounding

4) Early Withdrawal and Penalty​

Recording a penalty requires an extra posting to an expense account. This keeps your reporting clean and makes tax time easier.

; Break CD early; bank pays back principal plus net interest after penalty
2025-06-10 * "Early CD redemption; penalty applied"
  Assets:Bank:Checking              50,900.00 USD
  Assets:Bank:CD:12M               -50,000.00 USD
  Income:Interest:Bank             -1,200.00 USD
  Expenses:Bank:EarlyWithdrawalPenalty   300.00 USD
  document: "Documents:Bank/1099-INT-2025.pdf"  ; Box 2 shows the penalty

5) High-Yield Savings Interest and Reconciliation​

Recording interest from a savings account is straightforward. Use a balance assertion to confirm your books match the bank statement.

; Monthly interest posted to savings
2025-03-31 * "Monthly interest - Savings"
  Assets:Bank:Savings                   185.23 USD
  Income:Interest:Bank                -185.23 USD

; Reconcile with the month-end statement
2025-03-31 balance Assets:Bank:Savings  150,185.23 USD

Tip: Always attach digital copies of your statements and CD agreements using the document: metadata tag. At tax time, you can easily search for Expenses:Bank:EarlyWithdrawalPenalty and verify the amount against Box 2 of your 1099-INT.

Final Thoughts: A Simple Cash Policy​

• Segment Your Cash: Keep your runway plus 1–2 months of operating expenses in a liquid Savings/MMDA. Place reserves for the next 3–12 months in a CD ladder or T-Bills.
• Mind Your Insurance: Keep balances for each legal entity under the $250k limit per bank, or use an ICS service.
• Avoid Surprises: Read the fine print on withdrawal rules and CD penalties before you commit your cash.
• Stay Tax-Aware: Remember that interest is taxable and early-withdrawal penalties are deductible. Consult with your CPA to ensure you're handling them correctly.

This article is for educational purposes and does not constitute financial or tax advice. Please consult with a qualified professional for guidance specific to your business.

If you run a small business, the right credit card can be a quiet profit center. It can smooth your cash flow, earn outsized rewards on your real expenses, and bundle in protections you’d otherwise pay for. Below is a practical, category-aware shortlist of 16 excellent business cards for 2025. They are grouped by what they do best, with their key earning structures highlighted. Offers and terms change, so always verify details with the issuer before you apply.

Quick Picks: Who Should Get What​

• For simple, everyday cash back: The Chase Ink Business Unlimited® offers a flat 1.5% cash back on every purchase with a $0 annual fee and a 0% introductory APR on purchases for 12 months.

• For big spenders wanting high cash back without juggling categories: The Chase Ink Business Premier® is a pay-in-full card that earns 2.5% on purchases of $5,000 or more and 2% on everything else, with a $195 annual fee.

• For office, internet, and phone bills: The Chase Ink Business Cash® gives 5% cash back at office supply stores and on internet, cable, and phone services (up to a cap), plus 2% at gas stations and restaurants. It has a $0 annual fee and an introductory APR offer.

• For low-maintenance points on everything: The Blue Business® Plus Credit Card from American Express provides 2X Membership Rewards® points on the first $50,000 in purchases each year (then 1X) for a $0 annual fee.

• For a cash-back twin to the Blue Business Plus: The American Express Blue Business Cash™ Card earns 2% cash back on the first $50,000 spent annually (then 1%), with a $0 annual fee.

• For ad spend, shipping, and travel: The American Express® Business Gold Card automatically gives you 4X points on your top two eligible spending categories each billing cycle, up to $150,000 per year.

• For travel power perks and lounge access: The Business Platinum Card® from American Express is the go-to for premium travel benefits, offering 5X points on flights and prepaid hotels booked through AmexTravel, though it comes with a high annual fee.

• For a no-annual-fee, pick-your-category card: The Bank of America® Business Advantage Customized Cash Rewards card lets you earn 3% in a category of your choice and 2% on dining for a $0 annual fee. The Preferred Rewards for Business program can boost earnings by 25%–75%.

• For restaurants, gas/EV charging, and office supplies: The U.S. Bank Triple Cash Rewards Visa® Business Card earns 3% in these key categories, has a $0 annual fee, includes a $100 annual software subscription credit, and offers a 0% introductory APR window.

• For simple, travel-centric points: The Capital One Spark Miles for Business card earns 2X miles on everything and includes a Global Entry/TSA PreCheck credit. The $95 annual fee is waived for the first year.

• For unlimited 2% cash back: The Capital One Spark Cash Plus is a pay-in-full charge card with unlimited 2% cash back. Its $150 annual fee is refunded if you spend $150,000 annually.

• For loyal American Airlines travelers: The CitiBusiness® / AAdvantage® Platinum Select® Mastercard® offers a first checked bag free and preferred boarding on AA flights. The $99 annual fee is often waived for the first year.

• For warehouse club runs and fuel: The Costco Anywhere Visa® Business Card by Citi gives 4% back at gas stations/EV chargers (up to a cap), 3% on dining and eligible travel, and 2% at Costco. There's no card annual fee with a paid Costco membership.

• For Amazon-first businesses: The Amazon Business Prime American Express Card delivers 5% back at Amazon.com with an eligible Prime membership (or you can choose flexible payment terms), all for a $0 annual fee.

• For general travel points with a rich hotel ecosystem: The Marriott Bonvoy Business® American Express® Card earns 6X points at participating Marriott properties, provides Gold elite status, and includes an annual free-night certificate for a $125 annual fee.

• For ads, shipping, and travel spending: The Chase Ink Business Preferred® is a category workhorse, earning 3X points on shipping, online ads, travel, and internet/cable/phone services on the first $150,000 spent per year.

How to Choose Your Card​

To get more value than you pay in an annual fee, focus on these key areas.

Match rewards to your top expense lines. Look at your ledger. If you spend heavily on office supplies, internet, and phone bills, the Ink Business Cash® is unusually efficient. If your spending is concentrated in a few shifting categories like ads, shipping, or travel, the American Express® Business Gold Card automatically targets your top two categories each cycle without any manual switching.

If you prefer simplicity, go for a flat-rate card. Options like the Ink Business Unlimited® (1.5% cash back) and the Blue Business® Plus (2X points up to $50K) minimize the mental load without sacrificing value.

Fund growth with introductory APR windows. Several cards offer 0% introductory APR on purchases, which can help smooth out inventory or equipment buys if you pay them down on schedule. Look to the Ink Cash, Ink Unlimited, and U.S. Bank Triple Cash for these offers.

If you travel often, decide between perks and earning power. The Business Platinum Card® from American Express layers on lounges and statement credits, while the Capital One Spark Miles for Business keeps it simple with 2X miles everywhere and the option to transfer to airline and hotel partners.

Leverage existing banking relationships. If you already bank with Bank of America, their Preferred Rewards for Business status can boost earnings by 25%–75% on eligible BofA business cards, turning decent earn rates into standout ones.

For large, lumpy purchases, do the math. The Ink Business Premier® pays 2.5% on single transactions of $5,000 or more. If you regularly cut big checks for freight, equipment, or media buys, that math wins fast. Just remember it’s a pay-in-full card.

At-a-Glance Cheat Sheet​

No Annual Fee & Simple​

• Ink Business Unlimited®: 1.5% back on everything; intro APR.
• Blue Business® Plus: 2X points on the first $50K/year.
• Blue Business Cash™: 2% back on the first $50K/year.
• BofA Customized Cash Rewards: 3% in a category of your choice; 2% on dining; relationship boosts available.
• U.S. Bank Triple Cash Rewards Visa® Business: 3% in key business categories; software credit.

Cash-Back Maximizers​

• Ink Business Premier®: 2.5% on ≥$5K purchases; 2% otherwise; pay-in-full; $195 AF.
• Capital One Spark Cash Plus: Unlimited 2% back; AF refunded with $150K annual spend.

Travel-Forward​

• Ink Business Preferred®: 3X on ads, shipping, travel & more (up to $150K).
• Business Gold (Amex): 4X on your top 2 eligible categories (cap applies).
• Business Platinum (Amex): Premium travel perks & lounges; 5X via AmexTravel on flights/prepaid hotels.
• Spark Miles for Business: 2X miles on everything; transfer partners; Global Entry/TSA PreCheck credit.
• CitiBusiness / AAdvantage Platinum Select: AA bag & boarding perks; $99 AF (often waived year one).
• Marriott Bonvoy Business (Amex): Gold status + annual free night; $125 AF.

Category-Specific​

• Costco Anywhere Visa® Business by Citi: 4% gas/EV (to a cap), 3% dining/travel, 2% at Costco; requires Costco membership.
• Amazon Business Prime Amex: Up to 5% back at Amazon.com with eligible Prime (or flexible terms); $0 AF.

Smart Stacking Ideas​

• One-Card Simplicity: The Blue Business® Plus (2X up to $50K) or Ink Unlimited® (1.5% back) covers miscellaneous spending with minimal effort.

• Two-Card Combo: Pair the Ink Business Cash® (for its 5%/2% categories) with the Ink Business Unlimited® (for 1.5% everywhere else). If you prefer not to have two Chase cards, swap in the Blue Business® Plus for the "everywhere" role.

• Travel Optimizer: Use a high-multiplier card like the American Express® Business Gold Card (4X on top categories) or Ink Business Preferred® (3X on its categories) and a flat-rate travel card like the Spark Miles for Business for everything else, then redeem your points for trips.

Fine Print to Respect​

• Intro APR is not free money. Treat 0% periods as structured payment plans and pay off the balance before the introductory window closes. Cards like the Ink Cash, Ink Unlimited, and U.S. Bank Triple Cash all offer these periods.

• Pay-in-full products behave differently. The Ink Business Premier® and Spark Cash Plus are designed to be paid in full monthly. This is great for spenders with predictable cash flow but not for those who need to revolve a balance.

• Co-branded cards have constraints. Airline and hotel cards can be incredible—if you actually use the brand. Otherwise, general-purpose cash-back or transferable-points cards are usually a better first choice.

How This List Was Curated​

This list prioritizes (1) the earning math on common small-business categories, (2) simplicity of ongoing use, (3) cash-flow friendliness (like intro APR offers), and (4) issuer acceptance and ecosystem. All key card attributes were verified against public information as of September 2025.

Picking a business checking account in 2025 isn’t about finding a single “winner.” It’s about matching how you move money—ACH vs. wires, cash deposits, international payouts, multi-user access, interest on idle cash—to what each provider actually does well (and at what cost). Below are six excellent options, each “best” for a specific use case, followed by a quick comparison and a practical buying framework.

At a glance — best by use case​

• Bluevine — best for earning APY on checking and modern payables automation.
• Mercury — best for startups that want builder‑friendly banking and free USD wires.
• Relay — best for multi‑account cash management (up to 20 checking accounts) and cash deposits via Allpoint+.
• Novo — best for Stripe‑centric solo and small teams; fast Stripe payouts with Boost; domestic wires rolling out to eligible accounts.
• Axos Basic Business Checking — best for unlimited ATM reimbursements and free incoming wires.
• Chase Business Complete Banking — best for branch access, built‑in card acceptance, and regular cash deposits.

Quick comparison (key signals to check)​

Rates, fees, and coverage change—always confirm on the provider’s site before you apply. Data points above reflect public pages as of September 3, 2025.

The picks, explained​

Bluevine — online checking that actually pays​

• Why it’s great Bluevine’s tiered plans let you trade a higher monthly plan (waivable) for higher yield: 1.5% APY on Standard (with qualifying activity) up to 2.7% (Plus) and 3.7% (Premier)—with FDIC coverage up to $3M via a sweep network. Daily operations feel modern: unlimited transactions, free standard ACH, and integrated bill pay.
• Costs to watch Outgoing domestic wires are $15; same‑day ACH is $10; mailed checks are $1.50. Cash deposits work at Green Dot retailers (typically $4.95 per deposit) and Allpoint+ ATMs with stated per‑deposit limits.
• Good fit if you want yield on operating cash without giving up modern payables.

Mercury — startup‑grade banking with free USD wires​

• Why it’s great Mercury keeps fees simple: free ACH, checks, domestic wires, and USD international wires. If you send non‑USD, there’s a 1% FX fee. Deposits are held at partner banks with sweep coverage offering up to $5M in FDIC insurance. In March 2025, Mercury announced it’s transitioning away from Evolve to other partners (such as Choice Financial Group, Column N.A. and Patriot Bank).
• Costs to watch No cash deposits—period. If your business is cash‑heavy, consider Relay or Chase.
• Good fit if you’re a software‑first company wiring vendors globally, want API access, and don’t handle cash.

Relay — cash‑flow control with sub‑accounts and ATM cash deposits​

• Why it’s great Relay is built for envelope‑style budgeting: open up to 20 checking accounts under one entity, issue up to 50 cards, set rules/roles, and keep funds organized. Cash deposits are supported at Allpoint+ ATMs, and funds can be covered by FDIC up to $3M through its partner bank program.
• Costs to watch On the free Starter plan, outgoing domestic wires cost $8 (international via local rails from $5; $25 via SWIFT). Relay Pro adds same‑day ACH and free outgoing wires. Cash‑deposit limits at ATMs apply (e.g., $1,000 per deposit, $2,000/day).
• Good fit if you want clean segregation of funds (e.g., Profit First), team controls, and the ability to deposit cash without visiting a branch.

Novo — the Stripe‑friendly account for solos and creators​

• Why it’s great Novo integrates tightly with Stripe; flip on Novo Boost to get Stripe payouts up to two days faster (at no added Novo fee). Novo refunds ATM fees up to $7/month and now supports domestic wires for eligible accounts; international wires are sent via Wise.
• Costs to watch No direct cash deposits. If you take cash, you’ll buy a money order and mobile‑deposit it. Wire availability/fees may depend on eligibility and Wise’s schedule for international transfers.
• Good fit if you’re online‑first (e.g., e‑commerce or services), rely on Stripe, and want simple, low‑friction banking.

Axos Bank — $0/month with unlimited ATM rebates​

• Why it’s great Basic Business Checking has no monthly maintenance fee, unlimited domestic ATM fee reimbursements, free incoming wires (domestic & international), two reimbursed domestic outgoing wires/month, and no minimum opening deposit—rare for a full‑service bank.
• Costs to watch Additional outgoing wires beyond the included reimbursements may incur fees; check Axos’ current schedule before heavy wire usage.
• Good fit if you value a traditional bank’s stability with online convenience and nationwide ATM flexibility.

Chase Business Complete Banking — branch muscle + built‑in payments​

• Why it’s great Chase pairs a massive branch/ATM footprint with built‑in card acceptance via QuickAccept (with same‑day deposits) and multiple ways to waive the $15 monthly fee (e.g., $2,000 minimum daily ending balance, eligible deposits from Chase Payment Solutions, or Ink card spend). In‑branch, you get $5,000 of cash deposits per cycle at no extra charge.
• Costs to watch Wire fees are typical of big banks (e.g., $25 outgoing domestic online). If you prefer zero‑fee wires, consider Mercury; if you need cash deposits without branch visits, see Relay.
• Good fit if you accept card payments in person, regularly deposit cash, or want walk‑in service.

How to choose (in 10 minutes)​

• Map your money motion
  • Heavy cash? Favor Chase (branch) or Relay (Allpoint+ cash deposit).
  • Frequent wires? For low cost, Mercury (free USD wires) or Relay Pro (free outgoing wires) stand out.
  • Need yield on checking? Bluevine offers plan‑based APY up to 3.7%.
• Decide on operating style
  • Want envelope budgeting and multi‑entity clarity? Relay (up to 20 accounts) is built for it.
  • Stripe‑heavy revenue? Novo + Boost is tailor‑made.
• Check true cost vs. your transactions
  • Compare outgoing wire fees, same‑day ACH, and cash deposit fees against your monthly volumes. Bluevine and Relay publish clear per‑transaction fees; Mercury keeps most domestic/US‑dollar transfers at $0.
• Confirm coverage & partners
  • If extended FDIC matters, note Bluevine and Relay advertise up to $3M, Mercury up to $5M, via sweep networks across partner banks.

Methodology (what we prioritized)​

• Fees you’ll actually pay (outgoing wires, same‑day ACH, cash deposit fees) over teaser bonuses.
• Availability and access (cash deposits, branches/ATMs, multi‑user controls).
• Safety (FDIC pass‑through coverage and partner banks).
• Operational leverage (APY on checking, Stripe payout acceleration, multi‑account cash management).

We relied on official product pages, help-center articles, and reputable finance publications; all terms are subject to change—verify current details on the provider’s site before opening.

If you want flexible working capital you can draw, repay, and reuse, a business line of credit (LOC) beats taking repeated term loans. Below are this year’s strongest options by use‑case, plus a quick way to compare costs and a simple Beancount recipe for recording draws, interest, and fees.

TL;DR — Best‑fit picks by scenario​

• Fast, flexible fintech line: Bluevine — up to $250k, weekly or monthly repayment, funding often within 24 hours, rates advertised “as low as 7.8% (simple interest).”
• Fee‑based draws with multiple terms: American Express Business Blueprint® Line of Credit — line sizes $2k–$250k; choose 1–3‑month single‑repayment loans or 6–24‑month installment loans with fixed loan fees (not APR).
• Prime‑based bank line with clear pricing: Wells Fargo BusinessLine® / Prime Line — BusinessLine: Prime + 1.75% to +9.75%; Prime Line: Prime + 0.50% (floor 5%); typical credit limits $10k–$150k.
• Relationship pricing & a way to “graduate”: Bank of America — unsecured Business Advantage line (relationship discounts 0.25–0.75%); or Cash‑Secured line where your deposit sets the limit (from $1,000), helpful to build business credit.
• Branch + national reach: Chase Business Line of Credit — online up to $250k, 5‑year revolving period then 5‑year repayment (available in 48 states).
• Up to $250k with clear annual fee policy: U.S. Bank Cash Flow Manager — lines to $250k; unsecured option to $100k; no annual fee if line > $50k (otherwise $150).
• Newer businesses that need speed (know the cost): Headway Capital — $5k–$100k, calculator shows starting ~3.3% monthly + 2% draw fee.
• Fast approvals but typically expensive: OnDeck LOC — up to $200k; company‑reported average APR ~56.6% for lines (H1’25).
• For bigger, lower‑rate, monitored lines (if you qualify): SBA lines — classic CAPLines umbrella programs and the newer 7(a) Working Capital Pilot (WCP). WCP lets lenders issue monitored revolving lines up to $5M with an SBA guaranty.

What changed or matters in 2025? 📈​

Two key trends are shaping the business credit landscape this year:

1. Prime settled lower than 2023 highs. The Wall Street Journal Prime Rate is 7.50% (as of September 2, 2025), last changed on December 19, 2024. This is the benchmark rate that directly feeds the pricing for most variable-rate bank lines of credit (which are typically priced as "Prime + a margin"). A stable, lower Prime Rate means more predictable costs for borrowers.
2. SBA rolled out/expanded monitored working‑capital lines. The 7(a) Working Capital Pilot (WCP) program, effective August 1, 2024, continues to expand. It enables lenders to issue asset- or transaction-based monitored LOCs, which is a huge help for businesses needing financing for inventory, receivables, or specific contracts.

Snapshot: Popular lines of credit you can actually get​

How to choose the right LOC (7 quick checks) ✅​

1. Index & Margin: If it’s a bank line priced as "Prime ± X%", check today’s Prime Rate (7.50%) and add the margin you’re offered. That’s your current variable Annual Percentage Rate (APR).
2. Fee‑based vs. Interest‑based: Some fintechs (like AmEx Blueprint) charge a fixed "loan fee" per draw instead of interest. Compare the effective APR of that fee to interest-based offers before deciding.
3. Annual/Draw Fees: These add to your total cost, especially if you use the line infrequently. U.S. Bank waives its $150 annual fee for lines over $50k, while PNC lists a $175 fee for its unsecured LOC.
4. Repayment Cadence: Weekly payments (common with online lenders) can smooth out cash flow but require more frequent management. Monthly payments simplify bookkeeping. Bluevine offers both weekly and monthly options.
5. Funding Speed: If you need cash now, speed is critical. Bluevine often funds within 24 hours, and American Express offers instant deposits on draws to an AmEx Business Checking account.
6. Eligibility & Graduation Path: If you can't qualify for an unsecured line yet, a product like Bank of America’s cash‑secured line (starting at $1,000) can help you build business credit and "graduate" to an unsecured line later.
7. Consider SBA for Size or Structure: For larger needs tied to inventory, receivables, or contracts, the SBA's 7(a) WCP or CAPLines programs can provide larger, monitored lines at regulated rates, provided you can handle the more in-depth underwriting.

A quick cost comparison tip 🧮​

Comparing offers can be tricky. Here's a simple way to think about it:

• Prime‑based example: If a bank offers you Prime + 2.75%, your starting APR today is 10.25% (7.50% + 2.75%). Remember, this rate will float up or down if the Prime Rate changes.
• Fee‑based example (AmEx Blueprint): A 12-month draw with a 6–18% total loan fee might seem low. However, to compare apples-to-apples, you must compute the equivalent APR on the amortizing balance. A fixed fee on the initial draw amount is not the same as an APR on a declining balance.

Beancount: How to record a line of credit​

For users of the plain-text accounting tool Beancount, tracking a line of credit is straightforward. The LOC is a liability; draws increase that liability and your cash, while interest and fees are expenses. Replace the account names below to match your own ledger.

1) Draw $25,000 from your LOC to your checking account

2025-03-15 * "LOC draw"
  Assets:Bank:Checking                      25,000.00 USD
  Liabilities:LOC:Bluevine                -25,000.00 USD

2) Make a $2,300 payment ($300 interest, $2,000 principal)

2025-04-15 * "LOC payment (principal + interest)"
  Liabilities:LOC:Bluevine                  2,000.00 USD
  Expenses:Interest:LOC                       300.00 USD
  Assets:Bank:Checking                     -2,300.00 USD

3) Record a $150 annual fee charged to your bank account

2025-01-10 * "Annual LOC fee"
  Expenses:BankFees:LOC                       150.00 USD
  Assets:Bank:Checking                       -150.00 USD

Alternative: If the annual fee is added to the line's balance instead of being debited from your bank account, the transaction would be:

2025-01-10 * "Annual LOC fee added to balance"
  Expenses:BankFees:LOC                       150.00 USD
  Liabilities:LOC:Bluevine                   -150.00 USD

When an SBA-backed line makes more sense​

An SBA-guaranteed line isn't for everyone, but it's a powerful tool if:

• You need a bigger credit limit than what most fintech or bank unsecured products offer.
• Your working capital needs are tied to collateral like accounts receivable (A/R), inventory, or signed contracts.
• You can handle the monitoring requirements, such as submitting borrowing base certificates and regular financial reporting.

If this sounds like your business, look into the SBA CAPLines programs and the 7(a) Working Capital Pilot (WCP). These programs can facilitate lines up to $5M, and standard CAPLines can have maturities of up to 10 years.

Application checklist 📝​

Be prepared. Most lenders will ask for the following:

• Time in business, revenue, and credit score: Banks typically want 1–2+ years in business and stronger credit, while many online lenders have more flexible criteria but price for the added risk.
• Financials: Have your recent bank statements, business tax returns, and potentially A/R aging or inventory reports ready.
• Personal Guaranty: This is a standard requirement for most business lines of credit. It means you are personally responsible for repaying the debt if the business cannot.

Key sources​

• Prime Rate: Commerce Bank
• Bluevine: Product Page, Support Docs
• American Express: Business Blueprint LOC
• Wells Fargo: Business Lines of Credit
• Chase: Business Line of Credit
• U.S. Bank: Cash Flow Manager
• PNC Bank: Business Credit Products
• OnDeck: Product Page
• Headway Capital: Product Page
• SBA: CAPLines, 7(a) WCP

Final word​

A line of credit is about control: draw what you need, when you need it. In 2025, Prime-based bank lines remain attractive for those who qualify, while fintech lines trade higher costs for incredible speed and flexibility. For larger, more complex needs, SBA-backed lines unlock structured facilities. The key is to run the numbers (always convert fees to an effective APR), understand the fee structure, and pick a repayment schedule that keeps your business financially healthy—and your Beancount ledger clean.

Choosing where your company keeps—and moves—its money affects everything from fees to cash-flow visibility. The right account can save you hundreds in fees, earn you interest on idle cash, and simplify your bookkeeping. The wrong one can be a constant source of friction.

The good news: 2025 gives small businesses a deep bench of choices, from nationwide branch banks to modern banking platforms with powerful software layers. Below are seven standout options, each “best for” a different kind of business. Rates and terms change, so use this as a decision guide and confirm the details before you open an account.

TL;DR — Our Top Picks by Scenario​

• Need branches & easy cash deposits: Chase Business Complete Banking
• Want big-bank tools & rewards: Bank of America Business Advantage
• Maximizing your checking APY: Bluevine Business Checking
• For the software-first startup/VC-backed company: Mercury
• For Profit-First style envelopes & sub-accounts: Relay
• For fee-free, ATM-friendly online banking: Axos Basic Business Checking
• For no monthly fee + steady APY in the AmEx ecosystem: American Express® Business Checking

How We Chose These Accounts​

To find the best options, we focused on the features that matter most to small business owners. We analyzed total cost (including monthly fees and how to waive them), access to cash via branches and ATMs, built-in cash-flow management tools, and the potential to earn a yield on idle cash. We specifically looked at how well each account fits different business models, from cash-heavy retail stores to online SaaS companies.

The Short List: A Closer Look​

<a name="chase"></a>Chase Business Complete Banking — Best for Deposit-Heavy, Branch-First Businesses​

Why it stands out: With a massive network of over 5,000 branches and 15,000 ATMs, Chase provides unparalleled in-person access for businesses that handle frequent cash deposits or require face-to-face support. The account's standard $15 monthly fee is straightforward to waive by meeting requirements like maintaining a $2,000 minimum daily balance. A unique feature is the built-in QuickAccept card reader, which allows for same-day funding on eligible transactions, a major plus for managing daily cash flow.

Keep in mind: Like most traditional banks, Chase has a fee schedule for services like wire transfers and excess cash deposits. Before opening an account, review your typical monthly activity and compare it against their fee structure to avoid surprises.

<a name="bank-of-america"></a>Bank of America Business Advantage — Best for Big-Bank Tools & an Upgrade Path​

Why it stands out: Bank of America offers a tiered system that can grow with your business. The Business Advantage Fundamentals account starts with a promotional $0 monthly fee for the first year (then $16), which can be waived by meeting criteria like a $5,000 combined average monthly balance. As your business grows, you can move to the Relationship tier, which offers more no-fee services (like incoming wires) for higher balances. All tiers include access to a helpful cash-flow dashboard, QuickBooks integration, and a digital debit card you can use immediately.

Keep in mind: The monthly fee can be a drag if you don't consistently meet the waiver criteria. Be realistic about your typical balances and transaction volume to ensure you're in the right tier.

<a name="bluevine"></a>Bluevine Business Checking — Best for High APY on Checking​

Why it stands out: Bluevine challenges the idea that checking accounts don't earn interest. Eligible customers can earn a highly competitive Annual Percentage Yield (APY), with rates around $1.5% - 3.7%~APY depending on the plan and meeting certain activity qualifiers. It’s a powerful way to make your operational cash work for you. The account has no monthly fees and comes with a solid toolkit for payments, including ACH, wires, and invoicing.

Keep in mind: Bluevine is an online platform. While you can deposit cash, it's done through third-party networks like Allpoint+ ATMs and Green Dot retailers, which typically charge a fee (e.g., up to $4.95 per deposit). If your business handles a lot of physical cash, these fees could offset the interest earned.

<a name="mercury"></a>Mercury — Best for Startups that Want a Modern Finance Stack​

Why it stands out: Mercury is built for tech-savvy startups. It's a financial technology company (not a bank) that provides banking services through its FDIC-insured partner banks. It offers a powerful, developer-friendly platform with no monthly fees, granular user controls, and robust payment APIs. For businesses with significant cash on hand, Mercury offers up to $5 million in FDIC insurance eligibility through partner-bank sweep networks and Mercury Treasury, an option to invest idle cash into low-risk money market funds and T-bills, advertising yields up to ~4.26%~APY.

Keep in mind: Mercury Treasury is an investment account, not a bank account, meaning it is SIPC-protected but subject to market risk. Also, as a platform that relies on partner banks, the specifics of international payments and foreign exchange can vary, so read the fine print if you operate globally.

<a name="relay"></a>Relay — Best for "Profit First" Envelopes, Sub-Accounts, and Spend Controls​

Why it stands out: Relay is designed for business owners who want precise control over their finances. Like Mercury, it's a financial technology company with banking services provided by an FDIC-insured partner bank. Its standout feature is the ability to create up to 20 individual checking accounts to manage different budget categories (à la the "Profit First" method) and issue up to 50 virtual or physical debit cards with custom spending limits. It also offers a competitive savings APY on its paid plans, with tiers reaching up to ~3.03%~APY.

Keep in mind: As a software-first platform, handling physical cash is more complex than with a traditional bank. If your business model relies on frequent cash deposits, be sure to confirm that Relay's cash-in workflows fit your needs.

<a name="axos"></a>Axos Basic Business Checking — Best for Fee-Free, ATM-Friendly Online Banking​

Why it stands out: Axos Bank delivers a truly fee-conscious online banking experience. The Basic Business Checking account has no monthly maintenance fees and no transaction limits. Its most compelling feature is unlimited domestic ATM fee reimbursements, which is a rare and valuable perk for an online bank, giving you the freedom to withdraw cash from any ATM nationwide without penalty.

Keep in mind: Axos is a fully digital bank with no physical branches. If you need to deposit large amounts of physical cash or require in-person teller services, you will likely need to pair it with an account at a traditional brick-and-mortar bank.

<a name="american-express"></a>American Express® Business Checking — Best for No Monthly Fee + Stable APY​

Why it stands out: For businesses already in the American Express ecosystem, this checking account is a natural fit. It features no monthly service fees and offers a respectable APY (commonly reported around ~1.30%~APY in 2025) on balances up to $500,000. The account integrates seamlessly with AmEx charge and credit cards, making it easy to manage payments and rewards in one place.

Keep in mind: This is an online-first account. While excellent for digital transactions, businesses that are cash-heavy or need frequent in-person banking services should consider maintaining a relationship with a local branch bank as well.

Quick Chooser: Match the Account to Your Business​

• For retailers, restaurants, and trades with weekly cash deposits: Start with Chase or Bank of America for their extensive branch networks and straightforward fee waiver options.

• For online-first businesses (SaaS/e-commerce), distributed teams, or those with rigorous spending policies: Look at Mercury for its software-centric controls and Treasury yield option, or Relay for its powerful multi-account envelope budgeting.

• For making idle cash work without friction: Consider Bluevine for its high APY on checking balances or Mercury Treasury for sweeping larger sums into investment-grade funds (note the investment risk).

• For frequent ATM users who hate fees: Axos is the clear winner with its unlimited domestic ATM fee reimbursements.

• For businesses with heavy AmEx card usage seeking a simple, steady APY: The American Express Business Checking account is a logical and rewarding choice.

Frequently Asked Questions​

Are Mercury and Relay “banks”?

No. Both are financial technology companies that partner with FDIC-insured banks (like Thread Bank for Relay) to provide banking services. Your deposits are held at these partner banks and may be distributed across a "sweep network" of other banks to provide increased FDIC coverage, often up to several million dollars.

Can I earn interest on a business checking account?

Yes, absolutely. Several modern options now offer competitive yields. For instance, Bluevine advertises rates from ~1.5% to 3.7%~APY on checking for eligible customers, and Relay offers a savings APY up to ~3.03%~APY on certain plans. These rates are variable and can change with the market.

We handle lots of cash. Will an online-only account work?

It can, but it comes with trade-offs. You should expect to pay per-deposit fees or take extra steps. For example, Bluevine uses the Green Dot network for cash deposits, which typically involves a retail service fee. If cash is a core part of your operations, a traditional branch bank like Chase is often simpler and more cost-effective.

The Bottom Line​

There’s no single “best” small-business account—there’s only the best fit for your unique mix of deposits, payments, balances, and team workflow. If you need a simple rule of thumb for 2025:

• Consider a hybrid approach: Pair a branch account (like Chase or Bank of America) for cash and in-person needs with a software-first account (like Mercury or Relay) for superior digital controls and yield.
• Revisit your setup periodically: APYs, fees, and waiver rules change. A quick review once or twice a year can ensure you're still in the best possible account for your business.

Accuracy note: Fees, features, APYs, and availability are accurate as of September 3, 2025, per each provider’s disclosures and product pages. Always confirm current terms directly with the financial institution before opening or switching accounts.

Sources (Selected): Chase, Bank of America, Bluevine, Mercury, Relay, Axos Bank, Business Insider, American Express.

Choosing accounting software shouldn’t eat up your entire week. For most small businesses, the goal is to find a tool that’s easy to set up, handles the basics flawlessly, and doesn’t break the bank. To help you decide, we’ve put together a concise, plain-English rundown of eight options that small and medium-sized businesses (SMBs) actually enjoy using.

Below, we cover what each platform is best at, how much it costs (as of August 20, 2025), and the small gotchas to note before you commit.

How We Picked​

We focused on platforms that respect your time and solve real-world problems. Our selection criteria prioritized four key areas:

• Fast Onboarding: A clean user interface, sensible default settings, and helpful setup flows to get you up and running quickly.
• Core Features: Robust support for the essentials, including invoicing, bank feeds and reconciliation, and basic financial reporting.
• Price Clarity: Transparent, publicly listed prices or official statements, so you know what you’re paying for without a sales call.
• Scalability: The ability to grow with your business, whether that’s from a solo operation to a small team, with accessible add-ons or higher tiers.

1) Beancount.io — Best for developers & teams who want scriptable, auditable books​

What it is: Beancount.io is a modern, plain-text accounting platform that turns simple text-based transactions into comprehensive financial reports and dashboards. It’s a “finance-as-code” approach built for precision, automation, and complete data ownership. Paid tiers include AI-powered insights and highly customizable workflows.

• Why SMBs like it: The combination of plain-text data and version control (like Git) creates an airtight audit trail and makes reviewing financial changes as easy as reviewing code. Its flexible automation capabilities integrate seamlessly into engineering-centric workflows. Best of all, there is zero lock-in; your financial data lives in simple text files that you own, not in a proprietary walled garden.
• Pricing: A generous free tier is available for individuals and open-source projects. Paid plans unlock advanced automations and team features. See the official site for detailed pricing.
• Keep in mind: This platform is the best fit for teams who are comfortable working with files and version control systems like Git, or for businesses that want deep, programmatic control over their financial operations.

2) QuickBooks Online — Best for accountants-everywhere compatibility​

What it is: QuickBooks Online is the industry default and the platform your bookkeeper or CPA most likely already knows. It offers a deep feature set and arguably the most extensive ecosystem of integrations and professional support.

• Why SMBs like it: Its reporting capabilities are comprehensive, higher-tier plans handle inventory management well, and the vast marketplace of third-party app integrations means it can connect to almost any tool you use. Its biggest advantage remains its ubiquity—nearly every accountant is fluent in QuickBooks.
• List price: Plans range from Simple Start at $35/mo, Essentials at $65/mo, Plus at $99/mo, to Advanced at $235/mo. Intuit frequently runs promotions offering 50% off for the first 3 months. (QuickBooks Pricing)
• Keep in mind: For some users, the feature sprawl can feel heavy and overwhelming. Prices have also trended steadily upward over time, as noted by industry watchers. (Woodard Report on price increases)

3) Xero — Best for clean UI + unlimited users (on every plan)​

What it is: Xero is a popular QuickBooks alternative known for its clean, easy-to-navigate interface, strong bank feed connections, and a broad app marketplace. It’s particularly notable for offering unlimited user seats on every plan.

• Why SMBs like it: Users often praise its thoughtful workflows, which make daily tasks like reconciliation feel intuitive. The platform provides good cash-flow visualizations and is backed by a rich app ecosystem for extending its functionality.
• US price: The Early plan is $20/mo, Growing is $47/mo, and Established is $80/mo. Note that Xero has announced price increases for its US plans that will be effective October 1, 2025. (Xero Pricing)
• Keep in mind: The entry-level "Early" plan has caps on the number of invoices and bills you can send or enter. Essential services like payroll and mileage tracking are paid add-ons.

4) FreshBooks — Best for service businesses that live in invoices + time​

What it is: FreshBooks excels at the core needs of service-based businesses: simple and professional invoicing, integrated time tracking, and client management portals, all wrapped in polished web and mobile apps.

• Why SMBs like it: The invoicing experience is delightful and designed to help you get paid faster. It also offers excellent project profitability tracking on its Premium plan, allowing you to see which clients and projects are most valuable.
• List price: Core plans are Lite ($21/mo), Plus ($38/mo), and Premium ($65/mo). Costs can climb with add-ons like Team Members ($11/user/mo), Advanced Payments ($20/mo), and Payroll (starting at $40 + $6/worker/mo). Promotions often display lower introductory prices. (FreshBooks Pricing)
• Keep in mind: Be mindful of the client and user limits on lower tiers, as your costs can rise as your business scales or if you need multiple add-on features.

5) Zoho Books — Best automation value, especially if you already use Zoho​

What it is: Zoho Books is a feature-dense and automation-friendly accounting platform that delivers exceptional value. It integrates deeply with the broader Zoho suite of business apps, making it a powerful choice for existing Zoho users.

• Why SMBs like it: It offers excellent bang-for-your-buck with robust workflow rules that can automate many routine accounting tasks. It also includes strong inventory management options, even on mid-tier plans.
• US price (monthly): A Free plan is available with eligibility limits. Paid plans are Standard ($20), Professional ($50), Premium ($70), Elite ($150), and Ultimate ($275). Additional users cost $3/user/mo. (Zoho Books Pricing)
• Keep in mind: While powerful, some accountants may be less familiar with Zoho Books compared to QuickBooks. Each plan also comes with specific limits on invoice and expense volumes.

6) Wave — Best free starter option with paid “Pro” conveniences​

What it is: Wave is a fantastic starting point for brand-new businesses, freelancers, and solopreneurs who need to get up and running fast without an initial investment.

• Why SMBs like it: You get instant setup with unlimited invoicing and simple bookkeeping for free. The affordable Pro plan adds valuable conveniences like enhanced bank automations and better support.
• Price: The Starter plan is $0. The Pro plan is $19/mo (or $190/year). Credit card processing fees are typically 2.9% + $0.60, with a discount on the first 10 transactions for Pro users. (Wave Pricing)
• Keep in mind: It has fewer advanced features and integrations compared to giants like QuickBooks or Xero. Key features like automated bank imports and premium support are reserved for the Pro plan.

7) ZipBooks — Best lightweight alternative with a true free plan​

What it is: ZipBooks is a clean, friendly, and straightforward accounting tool that’s a great fit for side hustles, consultants, and small teams who want simplicity without a hefty price tag.

• Why SMBs like it: The interface is uncluttered and makes invoicing easy. It offers decent reporting for its class and supports connections to multiple bank accounts even on the free plan.
• Price: The Starter plan is Free, Smarter is $15/mo, and Sophisticated is $35/mo. A dedicated plan for accountants is also available. (ZipBooks Pricing)
• Keep in mind: Its main limitation is a smaller ecosystem of third-party integrations when compared to the "big three" (QuickBooks, Xero, FreshBooks).

8) Patriot Accounting — Best budget pick with optional US payroll​

What it is: Patriot offers a simple UI, US-based customer support, and a tightly integrated payroll bundle, making it a strong contender if you need both services without complexity.

• Why SMBs like it: The software is very approachable, with clear, no-nonsense pricing. Core tasks like creating invoices and importing bank transactions are easy to manage.
• Price: Accounting Basic is $20/mo and Accounting Premium is $30/mo. Payroll can be added, starting at $17/mo + $4/worker for basic service or $37/mo + $5/worker for full-service payroll. Promotions are common. (Patriot Software Pricing)
• Keep in mind: It lacks the advanced features and extensive integration library you'd find in QuickBooks or Xero, but it capably handles the fundamentals.

Quick “At a Glance” (prices are monthly list unless noted)​

• Beancount.io: Free tier; paid automations available. Best for dev-savvy teams.
• QuickBooks Online: $35–$235. Ubiquitous, feature-rich, widely supported.
• Xero: $20 / $47 / $80 (increases Oct 1, 2025). Clean UI, unlimited users.
• FreshBooks: $21 / $38 / $65. Strong for invoicing & project-based work.
• Zoho Books: Free–$275. Great automation value, especially if you’re already on Zoho.
• Wave: Starter $0; Pro $19/mo or $190/yr. Ideal for brand-new businesses.
• ZipBooks: Free–$35. Simple, friendly, and straightforward.
• Patriot: $20–$30. Great budget option with tightly integrated US payroll.

How to Choose in 10 Minutes​

Stop overthinking and start trying. Here’s a quick decision guide:

• If you want a “set it and forget it” system and you’re technical, start a Beancount.io free workspace. Import a week of transactions, script your recurring rules, and see the power of auditable, text-based books.
• If you work with outside accountants, try QuickBooks Online (the most universal option) or Xero (great for collaborating with its unlimited user policy).
• If you bill for your time and rely on polished, professional invoices, trial FreshBooks.
• If you want the most automation power for the lowest cost, test Zoho Books Standard vs. Premium plans.
• If you’re brand new and highly price-sensitive, start on the Wave or ZipBooks free plan and upgrade when you’re ready.
• If you need simple accounting and payroll under one roof at a budget price, check out Patriot.

Where Beancount.io Fits in Your Stack​

Beancount.io is built for businesses that see their financial records as a critical dataset, not just a compliance task. It provides:

• A developer-friendly ledger that’s precise, transparent, and reviewable in pull requests.
• Powerful automations to categorize, transform, and reconcile financial data at scale.
• AI-assisted insights that help you understand your numbers without surrendering ownership of your books.

Start for free and add advanced workflows only when you’re ready to scale.

Notes & Sources​

Pricing and feature information were verified from the official company websites on August 20, 2025. Prices are subject to change and do not always reflect promotional offers. See the citations linked throughout the article for the most current information: QuickBooks, Xero, FreshBooks, Zoho Books, Wave, ZipBooks, Patriot Software, and Beancount.io.

Understanding where your money comes from and where it goes is fundamental to running a successful business. While many business owners focus on their profit and loss statements, the cash flow statement often reveals the real story of your company's financial health. After all, you can be profitable on paper but still run out of cash to pay your bills.

What Is a Cash Flow Statement?​

A cash flow statement (also called a statement of cash flows) is a financial document that tracks all the money flowing in and out of your business during a specific period—whether that's a month, quarter, or year. Unlike an income statement that shows revenue when earned (even if payment hasn't arrived), a cash flow statement focuses exclusively on actual cash movements.

Think of it as your business's financial pulse. It shows whether you have enough cash to cover payroll, pay suppliers, invest in growth, and keep the lights on.

Why Your Business Needs a Cash Flow Statement​

Cash flow problems are one of the leading causes of small business failure. Even profitable businesses can fail if they don't have enough cash on hand to meet their immediate obligations. Here's why tracking cash flow matters:

Reveals True Liquidity: Your income statement might show a profit, but if customers haven't paid their invoices yet, you might not have actual cash available.

Enables Better Planning: By tracking cash patterns, you can anticipate shortfalls before they become crises and plan for major expenses or investments.

Attracts Investors and Lenders: Stakeholders want to see that your business generates positive cash flow and manages its resources responsibly.

Identifies Problem Areas: You might discover that too much cash is tied up in inventory, or that collection periods are too long.

Supports Growth Decisions: Should you hire that new employee? Lease new equipment? Your cash flow statement helps answer these questions.

The Three Sections of a Cash Flow Statement​

Every cash flow statement is organized into three main categories, each telling a different story about your business:

1. Operating Activities​

This section covers your day-to-day business operations—the activities that generate your primary revenue. Operating activities include:

• Cash received from customers for products or services
• Cash paid to suppliers and vendors
• Payroll and employee benefits
• Rent, utilities, and other operating expenses
• Interest payments
• Income tax payments

The net cash flow from operations is arguably the most important line on your statement. It shows whether your core business activities are generating positive cash flow. If this number is consistently negative, it's a red flag that your business model may need adjustment.

2. Investing Activities​

This section tracks cash flows related to long-term assets and investments:

• Purchase or sale of property, plant, and equipment
• Acquisition or disposal of other businesses
• Purchase or sale of investment securities
• Loans made to other entities (and repayments received)

For growing companies, this section often shows negative cash flow because they're investing in their future. That's not necessarily bad—it shows you're building for tomorrow. However, you need positive cash flow from operations or financing activities to support these investments.

3. Financing Activities​

This section shows how your business raises capital and pays it back:

• Proceeds from loans or issuing bonds
• Repayment of debt principal
• Money invested by owners or shareholders
• Stock buybacks
• Dividend payments

This section reveals how you're funding your business and whether you're relying heavily on external financing or generating enough cash internally.

How to Create a Cash Flow Statement​

There are two methods for preparing a cash flow statement: the direct method and the indirect method. Most small businesses find the indirect method easier to implement.

The Indirect Method (Recommended for Small Businesses)​

Step 1: Start with Net Income Begin with the net income from your income statement for the period.

Step 2: Adjust for Non-Cash Items Add back expenses that didn't involve cash payments:

• Depreciation and amortization
• Losses on asset sales (or subtract gains)

Step 3: Adjust for Working Capital Changes

• Add decreases (or subtract increases) in accounts receivable
• Subtract increases (or add decreases) in inventory
• Add increases (or subtract decreases) in accounts payable

For example, if accounts receivable increased by $2,000, subtract this from net income because you recorded revenue but haven't collected the cash yet.

Step 4: Add Investing Activities List all cash flows from buying or selling long-term assets and investments.

Step 5: Add Financing Activities Record all cash flows from debt, equity, and dividend transactions.

Step 6: Calculate Net Change in Cash Add up the net cash from all three sections. This should equal the change in your cash balance between the beginning and end of the period.

The Direct Method​

The direct method is more straightforward conceptually but requires more detailed record-keeping. You simply list all cash receipts and payments:

Cash Receipts:

• Collections from customers
• Interest received
• Other operating cash receipts

Cash Payments:

• Payments to suppliers
• Payments to employees
• Interest paid
• Income taxes paid
• Other operating cash payments

Subtract total payments from total receipts to get net cash from operating activities, then add the investing and financing sections as described above.

Real-World Example: A Small Bakery​

Let's say you own a neighborhood bakery. Here's how a simple monthly cash flow statement might look:

Operating Activities:

• Net income: $4,000
• Add: Depreciation: $500
• Increase in accounts receivable: -$1,000 (customers bought on credit)
• Decrease in inventory: $800 (used up supplies)
• Increase in accounts payable: $600 (delayed some supplier payments)
• Net cash from operations: $4,900

Investing Activities:

• Purchase of new oven: -$3,000
• Net cash from investing: -$3,000

Financing Activities:

• Principal payment on bakery loan: -$500
• Net cash from financing: -$500

Net increase in cash: $1,400

If you started the month with $5,000 in the bank, you'd end with $6,400.

Best Practices for Using Your Cash Flow Statement​

1. Review It Regularly​

Don't just create a cash flow statement once a year for your accountant. Review it monthly at minimum, and weekly if your business has tight margins or rapid growth. The more frequently you review it, the faster you can spot and address problems.

2. Create Cash Flow Projections​

Use historical data to forecast future cash flows. This helps you anticipate seasonal variations, plan for major expenses, and avoid cash crunches. Most businesses create 12-month rolling forecasts that they update monthly.

3. Watch Key Metrics​

Pay special attention to:

• Operating cash flow: Should be consistently positive
• Free cash flow: Operating cash flow minus capital expenditures
• Cash conversion cycle: How long it takes to turn inventory investments back into cash

4. Compare Periods​

Look at month-over-month and year-over-year trends. Is your operating cash flow growing? Are you becoming more or less dependent on financing? These trends reveal your business trajectory.

5. Reconcile with Other Statements​

Your cash flow statement should tell a consistent story with your balance sheet and income statement. The change in cash on your cash flow statement should match the change in the cash account on your balance sheet.

Common Mistakes to Avoid​

Confusing Profit with Cash Flow: Just because you're profitable doesn't mean you have cash. A $10,000 sale on 60-day payment terms helps your income statement today but doesn't help your cash flow for two months.

Ignoring the Operating Section: Some business owners focus only on the bottom line (total change in cash) without analyzing the sources. You want positive cash flow from operations, not just from taking on more debt.

Forgetting Non-Cash Transactions: Depreciation doesn't use cash, but it reduces your net income. Make sure you're adding it back when using the indirect method.

Not Planning for Seasonal Variations: Many businesses have seasonal cash flow patterns. Plan for the lean months during the abundant ones.

Mixing Up Principal and Interest: Interest payments are operating activities; principal payments on loans are financing activities. Keep them separate.

Download Your Free Cash Flow Statement Template​

To help you get started tracking your business's cash flow, we've created a free, easy-to-use Excel template that includes:

• Pre-formatted sections for operating, investing, and financing activities
• Automatic calculations
• Both monthly and annual views
• Customizable line items for your specific business
• Professional formatting for presentations to lenders or investors

The template uses the indirect method, which works well for most small businesses. Simply enter your financial data, and the template will calculate your cash flows automatically.

Taking Action: Your Next Steps​

Understanding and monitoring cash flow is not just about survival—it's about making informed decisions that drive growth. Here's how to put this knowledge into practice:

1. Start tracking now: Don't wait until next month or next quarter. Download the template and create your first cash flow statement this week.

2. Set a review schedule: Block time on your calendar to review cash flow at least monthly.

3. Build a cash cushion: Aim to maintain 3-6 months of operating expenses in cash reserves.

4. Tighten collections: If accounts receivable are eating up cash, implement stricter payment terms or follow-up procedures.

5. Manage inventory wisely: Excess inventory ties up cash. Use just-in-time ordering where possible.

6. Negotiate payment terms: Can you extend payables without damaging vendor relationships? Can you incentivize customers to pay faster?

The Bottom Line​

Cash flow management isn't glamorous, but it's essential. Your cash flow statement is one of the most powerful tools you have for understanding your business's financial health and making smart decisions. By tracking where your money comes from and where it goes, you can avoid cash crises, plan for growth, and build a more resilient business.

Remember: revenue is vanity, profit is sanity, but cash is king. Start tracking yours today.

Have questions about creating or interpreting your cash flow statement? Leave a comment below, and we'll help you find answers.

If you run a business that bills clients, you need a rock-solid way to track who owes you money. This is where Accounts Receivable (AR) comes in. It’s more than just a number on a report; it’s the lifeblood of your cash flow.

This guide will walk you through what Accounts Receivable is, why it matters, and how to manage it with precision and clarity using the plain-text accounting system, Beancount.

TL;DR​

Accounts receivable (AR) is the money customers owe you for goods or services you’ve already delivered. It’s a current asset on your balance sheet, central to accrual accounting, and a key driver of your business's cash flow. You can track AR cleanly in Beancount by using customer sub-accounts, linking invoices to payments with ^links, and running a few simple queries. To measure your collection speed, you can calculate AR Turnover and Days Sales Outstanding (DSO). To handle risk, you can use an allowance for doubtful accounts.

What is Accounts Receivable?​

Definition Accounts Receivable represents the balance of money due to your firm for goods or services delivered or used but not yet paid for by customers. Under accrual accounting, you recognize this revenue when you earn it, not when you receive the cash. As a result, AR appears as a current asset on your company's balance sheet.

Why It Matters Effectively managing your AR is critical for maintaining healthy liquidity. The faster you collect on your invoices, the shorter your cash conversion cycle—the time it takes to turn your investments in inventory and other resources back into cash. By monitoring metrics like AR Turnover and Days Sales Outstanding (DSO), you can get a clear picture of your collection efficiency and take action to improve it.

Accounts Receivable vs. Accounts Payable (One-Line Refresher)

• AR = money owed to you (it's an asset).
• AP = money you owe to others (it's a liability).

The Accounts Receivable Flow in Double-Entry Accounting​

Conceptually, the lifecycle of a receivable follows these steps:

1. Issuing an Invoice (Credit Sale): When you send an invoice, you increase your Assets (specifically, Accounts Receivable) and recognize the Income you've earned.
2. Cash Collection: When the customer pays, you increase one asset (your Assets:Bank account) and decrease another (Assets:AR). The net effect on your total assets is zero, but your cash position improves.
3. Discounts or Credits: If you offer an early-payment discount or issue a credit memo, you reduce the customer's AR balance and offset it with a discount expense or a reduction in revenue (contra-revenue).
4. Bad Debts: Unfortunately, not all invoices get paid. To account for this, you can recognize an allowance for doubtful accounts (a contra-asset that reduces your AR's value) and a corresponding bad debt expense. Later, you can write off a specific uncollectible invoice against this allowance.

Modeling AR in Beancount​

Beancount is a plain-text, double-entry accounting system that is perfectly suited for tracking AR. Its use of tags (which start with #), links (which start with ^), and a SQL-like query language (bean-query) makes your entire AR process transparent, auditable, and scriptable.

Suggested Account Structure​

A clean chart of accounts is the foundation. Here’s a recommended structure:

Assets:AR
Assets:AR:Clients:<Name>
Assets:AR:Allowance            ; A contra-asset account

Income:Sales
Income:Contra:SalesDiscounts   ; An alternative to an expense account

Expenses:SalesDiscounts
Expenses:BadDebt

1. Record a Credit Sale (Issue an Invoice)​

When you send an invoice to a client, you record it in your ledger.

2025-07-01 * "Acme Co." "Invoice 2025-045 · Web design" ^INV-2025-045 #ar #client:acme
  invoice: "2025-045"
  due: "2025-07-31"
  document: "/invoices/2025/INV-2025-045.pdf"
  Assets:AR:Clients:Acme-Co           1200.00 USD
  Income:Sales                       -1200.00 USD

• The ^INV-2025-045 link is a unique identifier that will tie this invoice to its future payment(s).
• The document: metadata helps Fava (Beancount's web interface) render a clickable link directly to the invoice PDF.

2. Record Full Payment​

When Acme Co. pays the invoice in full, you clear their receivable balance.

2025-07-25 * "Acme Co." "Payment for INV-2025-045" ^INV-2025-045 #ar
  Assets:Bank:Checking                1200.00 USD
  Assets:AR:Clients:Acme-Co          -1200.00 USD

Using the same ^INV-2025-045 link creates a clear audit trail connecting the invoice and the payment.

3. Handling Partial Payments​

If a client makes a partial payment, the process is the same. The link keeps everything connected.

2025-07-20 * "Acme Co." "Partial payment INV-2025-045" ^INV-2025-045 #ar
  Assets:Bank:Checking                 400.00 USD
  Assets:AR:Clients:Acme-Co           -400.00 USD

A query on ^INV-2025-045 would show the original $1200 invoice and this $400 payment, leaving an $800 balance.

4. Handling an Early-Payment Discount​

Let's say you offer a 2% discount on a $1000 invoice if paid early.

2025-07-10 * "Acme Co." "2% early-payment discount on INV-2025-046" ^INV-2025-046 #ar
  Assets:Bank:Checking                 980.00 USD
  Expenses:SalesDiscounts               20.00 USD
  Assets:AR:Clients:Acme-Co          -1000.00 USD

Here, you clear the full $1000 receivable, record the $980 cash received, and book the $20 discount as an expense. Note: Many ledgers treat sales discounts as contra-revenue instead of an expense. Using an expense account is often simpler for smaller ledgers. The key is to choose one method and use it consistently.

5. Including Sales Tax on Invoices​

If you collect sales tax, you record it as a liability at the time of invoicing.

2025-07-01 * "Acme Co." "INV-2025-047 · Hardware + tax" ^INV-2025-047 #ar
  invoice: "2025-047"
  due: "2025-07-31"
  Assets:AR:Clients:Acme-Co           1100.00 USD
  Income:Sales                       -1000.00 USD
  Liabilities:Tax:Sales               -100.00 USD

You've invoiced for $1100, recognized $1000 in revenue, and now owe $100 to the tax authority.

6. Handling Bad Debts (Allowance Method)​

The allowance method is preferred under Generally Accepted Accounting Principles (GAAP) as it better matches expenses to revenues.

Step 1: Estimate and Create the Allowance (e.g., at Year-End) Based on historical data, you estimate a percentage of your receivables may be uncollectible.

2025-12-31 * "Allowance for doubtful accounts (2% of AR)"
  Expenses:BadDebt                     300.00 USD
  Assets:AR:Allowance                 -300.00 USD

This creates a contra-asset account (Assets:AR:Allowance) that reduces the book value of your total receivables.

Step 2: Write Off a Specific Uncollectible Invoice Later When you are certain an invoice will not be paid, you write it off against the allowance.

2026-03-05 * "Write-off INV-2025-049 for Insolvent Client" ^INV-2025-049 #ar
  Assets:AR:Allowance                 1200.00 USD
  Assets:AR:Clients:Insolvent-Client -1200.00 USD

Notice this transaction does not impact your expenses; the expense was already recognized when you created the allowance.

Minimal Reporting & Queries​

You can get quick snapshots of your AR using Fava or bean-query.

Open Receivables by Customer

SELECT account, SUM(position)
WHERE account ~ '^Assets:AR'
GROUP BY account
ORDER BY account;

Journal of AR Activity for a Period

JOURNAL
WHERE account ~ '^Assets:AR'
  AND date >= 2025-07-01 AND date < 2025-08-01;

Core AR Metrics (With Quick Formulas)​

For these ratios, a practical approach is to use bean-query to export the necessary numbers (period sales, beginning/ending AR balances) and then perform the calculations in a spreadsheet or a script. This keeps your ledger clean and your math explicit.

AR Turnover Ratio​

This measures how many times per period your business collects its average accounts receivable. Higher is better.

$AR\\ Turnover = \\frac{Net\\ Credit\\ Sales}{Average\\ AR}$

DSO (Days Sales Outstanding)​

This tells you the average number of days it takes to collect payment after a sale has been made. Lower is better.

$DSO = (\\frac{Accounts\\ Receivable}{Total\\ Credit\\ Sales}) \\times Number\\ of\\ Days$

Together, these metrics indicate how efficiently you convert invoices into cash.

A Simple Beancount Starter File (Copy/Paste)​

; --- Accounts ---------------------------------------------------------------
1970-01-01 open Assets:Bank:Checking           USD
1970-01-01 open Assets:AR
1970-01-01 open Assets:AR:Clients:Acme-Co
1970-01-01 open Assets:AR:Allowance
1970-01-01 open Income:Sales
1970-01-01 open Expenses:SalesDiscounts
1970-01-01 open Expenses:BadDebt
1970-01-01 open Liabilities:Tax:Sales          USD
; ---------------------------------------------------------------------------

; Example invoice
2025-07-01 * "Acme Co." "Invoice 2025-045 · Web design" ^INV-2025-045 #ar
  invoice: "2025-045"
  due: "2025-07-31"
  document: "/invoices/2025/INV-2025-045.pdf"
  Assets:AR:Clients:Acme-Co           1200.00 USD
  Income:Sales                       -1200.00 USD

; Payment received
2025-07-25 * "Acme Co." "Payment INV-2025-045" ^INV-2025-045 #ar
  Assets:Bank:Checking                1200.00 USD
  Assets:AR:Clients:Acme-Co          -1200.00 USD

Operational Tips to Keep AR Healthy​

• Set Clear Terms: Include the due date, late fee policies, and any early-payment discount terms on every invoice.
• Link Everything: Use consistent ^INV-... links to tie invoices, payments, and credit memos together for a clear audit trail.
• Attach Documents: Use the document: metadata to link to PDFs of invoices, purchase orders, and contracts.
• Review Monthly: Check your open AR report at least once a month and follow up on past-due invoices. Watch your AR Turnover and DSO trends to spot problems early.

Further Reading (Sources Used)​

• Investopedia on AR basics and DSO
• Beancount documentation for syntax, links/tags, and the query language
• Lumen Learning on the allowance vs. direct write-off methods

If your business received a Paycheck Protection Program (PPP) loan during the pandemic and you haven't yet applied for forgiveness, you're not alone. As of 2025, approximately 98% of PPP loans have been forgiven, but thousands of businesses still have the opportunity to have their loans fully forgiven. This guide will walk you through everything you need to know about securing PPP loan forgiveness in 2025.

Understanding PPP Loan Forgiveness​

The PPP was designed from the start to be a forgivable loan program. If you used your loan proceeds correctly and meet specific requirements, your entire loan amount—including accrued interest—can be forgiven. This means you won't have to repay it.

The good news? The application process has been significantly streamlined, especially for smaller loans. Even in 2025, you can still apply for forgiveness if you received PPP funding in previous rounds.

Who Qualifies for Forgiveness?​

To qualify for full PPP loan forgiveness, your business must meet these core requirements:

Spending Requirements You must have spent at least 60% of your loan proceeds on payroll costs during your covered period. The remaining 40% can be used for other qualifying expenses. If you spent less than 60% on payroll, you may still receive partial forgiveness, but the amount will be reduced proportionally.

Covered Period Your covered period is either 8 or 24 weeks, starting from the date you received your first loan payment. You had the flexibility to choose your covered period when you applied. Any payroll costs incurred during this window are eligible, regardless of when employees actually receive their paychecks.

Maintaining Employment Levels Generally, you need to maintain your employee headcount and compensation levels. However, safe harbors exist if you can demonstrate that you couldn't rehire employees or find qualified replacements.

Eligible Expenses for Forgiveness​

Your PPP funds can be used for forgiveness on these qualifying expenses:

Payroll Costs (minimum 60%)

• Salary, wages, commissions, and tips
• Employee benefits including health insurance premiums
• Retirement contributions
• State and local payroll taxes

Non-Payroll Costs (up to 40%)

• Business mortgage interest (not principal)
• Business rent or lease payments
• Business utility payments
• Covered operations expenditures
• Covered property damage costs
• Covered supplier costs
• Covered worker protection expenditures

All non-payroll obligations must have been in place before February 15, 2020.

The Application Process: Simplified Options​

The SBA offers three different application forms, and which one you use depends on your loan amount:

Form 3508S (Loans $150,000 or Less)​

This is the simplest option. You won't need to provide extensive documentation upfront or perform complex calculations. Simply certify:

• How much you spent on payroll
• How much you're requesting for forgiveness
• That you followed all program rules

Form 3508EZ (Medium Complexity)​

Use this form if you don't qualify for 3508S but meet certain conditions, such as maintaining employee and compensation levels.

Form 3508 (Full Application)​

Required for loans over $2 million or if you don't qualify for the simplified forms. This requires more detailed calculations and documentation.

Required Documentation​

The documentation you'll need depends on which form you're using:

For All Applications:

• Proof of payroll costs (bank statements, payroll reports, tax filings)
• Documentation of eligible non-payroll expenses (receipts, canceled checks, account statements)

Important: Form 3508S requires the least documentation upfront, though you should still maintain records in case of an audit.

For Loans Over $150,000: You'll need to provide more detailed documentation, including:

• IRS Form 941 or equivalent payroll tax filings
• State quarterly wage reporting forms
• Payment receipts for health insurance and retirement contributions
• Proof of mortgage interest, rent, or utility payments

Using the SBA Direct Forgiveness Portal​

Since March 2024, all borrowers can use the SBA's direct forgiveness portal regardless of loan size. This online system can reduce your application time to just 15 minutes.

Steps to Apply Online:

1. Visit the SBA's direct forgiveness portal
2. Enter your loan information
3. Answer questions about how you used the funds
4. Upload required documentation (if applicable)
5. Review and submit your application

Alternatively, you can still work directly with your lender if you prefer personal assistance.

Important Deadlines and Timelines​

Application Window You can apply for forgiveness anytime up to five years from the date your loan was issued. However, if you don't apply within 10 months after your covered period ends, you'll need to start making loan payments.

Review Process The SBA typically reviews applications within 90 days, though simpler applications using Form 3508S may be processed faster. Once approved, your lender will receive payment directly from the SBA.

Common Mistakes to Avoid​

Don't Double-Dip on Tax Credits You cannot claim the Employee Retention Credit for the same wages you're using for PPP forgiveness. Keep these separate to avoid issues with the IRS.

Maintain Accurate Records Even if your loan amount doesn't require upfront documentation, you must keep records for at least six years. The SBA can audit your loan at any time during this period.

Calculate Your 60/40 Split Carefully Ensure at least 60% of your total forgiveness amount comes from payroll costs. Many businesses make the mistake of calculating this based on total loan amount rather than forgiveness amount.

Don't Forget Indirect Compensation Health insurance premiums, retirement contributions, and state/local payroll taxes count toward your payroll costs. Many businesses overlook these when calculating their eligible expenses.

What Happens If You're Not Fully Forgiven?​

If only a portion of your loan is forgiven, you'll need to repay the remaining balance over the loan term (either 2 or 5 years, depending on when you received your loan). The interest rate is 1%, which is quite favorable compared to most business loans.

Audit Risks and Compliance​

Loans over $2 million face enhanced scrutiny and are subject to mandatory reviews. All borrowers, regardless of loan size, can be audited for up to six years after forgiveness.

The SBA expanded its audit and compliance efforts in 2025, focusing particularly on:

• Larger loans exceeding $2 million
• Businesses flagged for potential misuse of funds
• Inconsistencies in documentation

To protect yourself:

• Maintain meticulous records
• Ensure all certifications on your application are accurate
• Consult with a CPA or financial advisor if you're uncertain about any aspect of your application

Next Steps​

If you haven't applied for PPP loan forgiveness yet, don't wait. The process is more straightforward than ever, especially for loans under $150,000.

Your Action Plan:

1. Gather your documentation (payroll records, expense receipts, bank statements)
2. Calculate how you used your loan proceeds
3. Choose the appropriate form (3508S, 3508EZ, or 3508)
4. Apply through the SBA portal or contact your lender
5. Keep all records for at least six years

Remember, even though the PPP program ended in 2021, you still have time to apply for forgiveness. Taking action now means you can close this chapter of pandemic assistance and move forward without the burden of loan repayment.

Additional Resources​

For the most current information and to access the direct forgiveness portal, visit the SBA's official PPP forgiveness page. If you have questions specific to your situation, consider consulting with:

• Your original PPP lender
• A certified public accountant familiar with PPP requirements
• A small business attorney
• Your local Small Business Development Center

Getting your PPP loan forgiven is one of the most valuable financial moves you can make for your business. With the simplified processes now in place, there's never been a better time to complete your application and secure the forgiveness you're entitled to receive.

What it is, when it pays off, and how to model it cleanly in your ledger (with examples).

⚠️ This guide is U.S.-specific and for education only. Talk to a tax pro for your situation.

TL;DR​

• An S-corp is a tax status you choose with the IRS (via Form 2553) so that business profits pass through to the owners' personal tax returns. A key requirement is that you must pay owner-operators a reasonable W-2 salary before taking any profit as dividends or distributions.
• Deadlines matter: For an existing business, you must file no later than the 15th day of the 3rd month of the tax year you want the S-corp status to begin. For a calendar-year 2025 election, March 15, 2025, falls on a Saturday, so the practical deadline is the next business day, Monday, March 17, 2025.
• Why do this? The main attraction is potential self-employment tax savings. While your W-2 salary is subject to FICA taxes, distributions are not. However, this benefit comes with added costs for payroll, compliance, and, in some states, extra entity-level taxes.
• In Beancount, it's critical to separate wages from distributions. You'll need to track payroll liabilities, handle the special accounting for health insurance for shareholders owning more than 2% of the company, and record distributions explicitly through equity accounts.

What is an S-corp election?​

At its core, an S-corp election is a request you make to the IRS to change how your business is taxed. By filing Form 2553, you ask the IRS to tax your corporation or LLC under Subchapter S of the Internal Revenue Code. This makes your business a "pass-through" entity, meaning its income, losses, deductions, and credits are passed directly to the shareholders' personal tax returns. It’s purely a tax classification, not a different type of legal business entity.

Key effects for an owner-operator​

Once the election is active, your role fundamentally splits in two: you are now both a shareholder and an employee of your company.

This distinction is crucial. The compensation you receive for your labor must be paid as W-2 wages, which are subject to standard payroll taxes (Social Security and Medicare). Any remaining profit can then be paid out as distributions, which are generally not subject to self-employment taxes. The IRS insists that you pay yourself a reasonable salary for your work before you take any distributions.

Should you elect S-corp status?​

The S-corp election is often worth evaluating once your business generates steady and meaningful profit. A common rule of thumb is to consider it when your ongoing business profit can comfortably support a market-rate salary for your role, with enough left over to make distributions worthwhile after covering all the new administrative costs.

The exact break-even point is unique to your situation and depends on several factors:

• Your "Reasonable Salary": What would a business pay for someone with your skills and responsibilities in your industry? This figure is the baseline for your W-2 wages and is subject to IRS scrutiny.
• State Taxes and Fees: Some states have their own rules. California, for example, imposes a 1.5% tax on an S-corp's net income, plus a minimum annual franchise tax of $800.
• Added Costs: You'll need a payroll service, and you'll be paying for unemployment insurance. Your bookkeeping and tax preparation fees will also likely increase due to the added complexity.
• QBI Deduction (Section 199A): The S-corp election can impact your Qualified Business Income deduction. The W-2 wages you pay yourself can either help you qualify for the full deduction or, at higher income levels, become a limiting factor.

Eligibility & Timing​

Not every business can become an S-corp. Here are the high-level requirements:

• It must be a domestic corporation or an eligible LLC.
• It can have no more than 100 shareholders.
• It can only have one class of stock.
• Shareholders must be individuals, certain trusts, or estates (i.e., no partnerships, corporations, or non-resident alien shareholders).

When to file Form 2553​

Timing is critical, and the rules differ slightly for new versus existing businesses.

• For a new business: You must file within 2 months and 15 days after the first day of your first tax year. For example, if your business's tax year begins on January 7, your deadline is March 21.
• For an existing C-corp (or an LLC taxed as a C-corp): You can file at any time during the preceding tax year or by the 15th day of the 3rd month of the year you want the election to take effect. If this date falls on a weekend or holiday, the deadline shifts to the next business day, a provision granted under IRC Section 7503.

What if you missed the deadline? Don't panic. The IRS provides a path for late-election relief under Revenue Procedure 2013-30. You can often file for this relief within 3 years and 75 days of the intended effective date, provided you have a reasonable cause for the late filing.

Reasonable Salary: The Part That Trips People Up​

This is the most scrutinized aspect of the S-corp structure. The IRS is very clear: shareholder-employees must be paid reasonable compensation for the services they provide before any profits are taken as distributions.

What does "reasonable" mean? There's no single dollar amount. The IRS and courts look at a variety of factors to determine if your salary is appropriate, including your duties and responsibilities, the time you spend working, your level of experience, and what comparable businesses would pay for similar services. Expect the IRS to take a close look if you pay yourself a very low W-2 salary while taking large distributions. This is often seen as a red flag for attempting to evade payroll taxes.

Health Insurance & Fringe Benefits for >2% Shareholders​

There's a special rule for how S-corps handle health insurance for shareholders who own more than 2% of the company. If the S-corp pays or reimburses these health insurance premiums, the cost is deductible by the S-corp.

However, the value of those premiums must also be included in the shareholder-employee's W-2 wages. While this amount is subject to federal income tax withholding, it is exempt from Social Security and Medicare (FICA) taxes as long as it's handled correctly. You must coordinate with your payroll provider to ensure these amounts are reported properly on your W-2.

State-Level Gotchas (Examples)​

Federal S-corp status doesn't always translate directly at the state level. Always check your state's specific rules.

• California: S-corps are subject to a 1.5% tax on their California-source net income. Additionally, most corporations must pay an $800 minimum franchise tax each year (though some exceptions apply for the first year).
• New York: Making a federal S-corp election is not enough. You must also file a separate state-level election, Form CT-6, to be treated as a New York S-corporation. Failure to do so means you'll be taxed as a standard C-corp at the state level.

How to Model an S-corp Cleanly in Beancount​

Plain text accounting is perfect for managing the added complexity of an S-corp. Here’s how to structure your ledger.

Suggested Chart of Accounts (Starter)​

This basic structure separates your payroll expenses from distributions and creates liability accounts to track taxes you owe.

; Core bank & income
1970-01-01 open Assets:Bank:Checking              USD
1970-01-01 open Income:Sales                      USD
1970-01-01 open Income:Other                      USD

; Payroll expenses & liabilities
1970-01-01 open Expenses:Payroll:Wages            USD
1970-01-01 open Expenses:Payroll:EmployerTaxes    USD
1970-01-01 open Expenses:Benefits:HealthInsurance USD
1970-01-01 open Liabilities:Payroll:Federal:FIT    USD
1970-01-01 open Liabilities:Payroll:FICA          USD
1970-01-01 open Liabilities:Payroll:Medicare      USD
1970-01-01 open Liabilities:Payroll:State:Withholding USD

; Equity
1970-01-01 open Equity:ContributedCapital         USD
1970-01-01 open Equity:Distributions              USD
1970-01-01 open Equity:RetainedEarnings           USD

Typical Payroll Run (Simplified)​

Your payroll provider (e.g., Gusto, ADP) will debit your bank account for your net pay and the total tax liability. Your Beancount transaction should break this down into the gross wages, employer taxes, and the corresponding liabilities.

; This transaction records a $100k annual salary, paid monthly.
2025-01-31 * "Gusto" "Jan payroll — shareholder-employee"
  Expenses:Payroll:Wages                   8,333.33 USD ; Gross wages
  Expenses:Payroll:EmployerTaxes             637.50 USD ; Employer-side FICA/Medicare
  Liabilities:Payroll:Federal:FIT         -1,200.00 USD ; Employee withholding
  Liabilities:Payroll:FICA                  -516.67 USD ; Employee withholding
  Liabilities:Payroll:Medicare              -120.83 USD ; Employee withholding
  Assets:Bank:Checking                    -7,133.33 USD ; Net pay debited from bank

When your payroll provider remits those taxes to the government on your behalf, you'll record another transaction to clear out the liabilities.

; This represents the tax payment made by your payroll provider.
2025-02-15 * "EFTPS" "Federal payroll tax deposit"
  Liabilities:Payroll:Federal:FIT          1,200.00 USD
  Liabilities:Payroll:FICA                   516.67 USD
  Liabilities:Payroll:Medicare               120.83 USD
  Assets:Bank:Checking                    -1,837.50 USD ; This amount matches the tax portion of the Gusto debit.

Health Insurance for a >2% Shareholder​

Record the premium payment as a business expense. You can use metadata to remind yourself that this needs to be reported on the W-2.

2025-02-01 * "BlueCross" "Shareholder health insurance (report on W-2)"
  Expenses:Benefits:HealthInsurance          600.00 USD  ; w2: "true"
  Assets:Bank:Checking                      -600.00 USD

Owner Distributions (Not Wages)​

Distributions are a reduction of equity, not a business expense. Record them separately from payroll.

2025-03-31 * "Owner Distribution" "Q1 distribution"
  Equity:Distributions                    20,000.00 USD
  Assets:Bank:Checking                   -20,000.00 USD

Tracking Shareholder Basis (Optional, but Recommended)​

Your shareholder basis determines whether distributions are tax-free and whether you can deduct business losses on your personal return. While the official calculation is done on your tax return, you can track an estimate in Beancount using a dedicated equity subaccount or metadata. You'll reconcile this to the Schedule K-1 you receive from the S-corp annually.

A Note on the QBI Deduction (Section 199A)​

Owners of pass-through businesses, including S-corps, may be eligible for up to a 20% deduction on their qualified business income (QBI). However, for taxpayers with income above a certain threshold, this deduction can be limited by the amount of W-2 wages the business pays. This creates a complex interplay: paying a reasonable salary is required for an S-corp, and those same wages can impact your QBI deduction—sometimes helping it, sometimes limiting it. This is a key area to model with your tax professional.

What Changes Operationally After You Elect?​

Switching to an S-corp adds a few administrative layers:

• Run Payroll: You must formally run payroll, complete with tax withholdings, employer tax payments, quarterly filings, and year-end W-2s.
• File Form 1120-S: This is the annual S-corporation tax return. You'll also issue a Schedule K-1 to each shareholder detailing their share of the company's financial results.
• Handle Shareholder Health Insurance Correctly: Ensure premiums for >2% owners are included in their W-2 wages.
• Mind State Rules: Stay on top of any required state-level S-corp elections or entity taxes (like in CA and NY).

Common Pitfalls to Avoid​

• Late or Invalid Election: Double-check deadlines and ensure all required shareholders sign Form 2553. If you miss it, investigate relief under Rev. Proc. 2013-30.
• Unreasonable Salary: Don't be tempted to pay yourself an artificially low salary. Document why your compensation is reasonable based on your role and market data.
• Mixing Wages and Distributions: Keep these transactions clean and separate in your books. Distributions are not payroll.
• Ignoring State Requirements: Forgetting a state election or failing to pay an entity-level tax can lead to penalties and compliance headaches.

Quick Checklist​

• Confirm you are eligible and that the potential tax savings outweigh the new costs.
• Calendar the Form 2553 filing deadline (and remember the weekend/holiday rule).
• Set up a payroll service and determine a well-documented, reasonable salary.
• Plan to take distributions only after salary and business expenses are paid.
• Investigate and comply with your state's specific S-corp filing requirements and taxes.
• Update your Beancount ledger with the necessary accounts for payroll, liabilities, and shareholder equity.

Beancount S‑Corp Starter (neutral template)

;
; Beancount S‑Corp Starter (neutral template)
; Generated: 2025-08-09
; ---
; How to use this:
; 1) Search for "TODO" and fill in your state(s), payroll provider, EIN, and bank names.
; 2) Keep wages and owner distributions separate.
; 3) Coordinate with your payroll provider to report >2% shareholder health insurance on the W‑2 (Box 1).
; 4) Delete or adapt the CA/NY examples if you’re in a different state.
;
; Notes:
; - This is a bookkeeping template, not tax advice.
; - Operating currency assumed USD. Change as needed.
;

option "title" "S‑Corp Ledger"
option "operating_currency" "USD"
commodity USD

; === Accounts (open as of 2025-01-01; adjust dates as needed) ==================
2025-01-01 open Assets:Bank:Checking                    USD  ; TODO: Rename to your bank (e.g., Assets:Bank:Chase:Operating)
2025-01-01 open Assets:Bank:Savings                     USD
2025-01-01 open Assets:AccountsReceivable               USD
2025-01-01 open Assets:PrepaidExpenses                  USD

2025-01-01 open Liabilities:CreditCard:Corporate        USD
2025-01-01 open Liabilities:Payroll:Federal:FIT         USD
2025-01-01 open Liabilities:Payroll:Federal:FICA        USD
2025-01-01 open Liabilities:Payroll:Federal:Medicare    USD
2025-01-01 open Liabilities:Payroll:Federal:FUTA        USD
2025-01-01 open Liabilities:Payroll:State:Withholding   USD   ; TODO: Rename state (e.g., CA, NY)
2025-01-01 open Liabilities:Payroll:State:Unemployment  USD
2025-01-01 open Liabilities:Payroll:Local               USD

2025-01-01 open Equity:ContributedCapital               USD
2025-01-01 open Equity:Distributions                    USD
2025-01-01 open Equity:RetainedEarnings                 USD
2025-01-01 open Equity:OpeningBalances                  USD

2025-01-01 open Income:Sales                            USD
2025-01-01 open Income:Other                            USD

2025-01-01 open Expenses:COGS                            USD
2025-01-01 open Expenses:Payroll:Wages                   USD
2025-01-01 open Expenses:Payroll:EmployerTaxes:FICA      USD
2025-01-01 open Expenses:Payroll:EmployerTaxes:Medicare  USD
2025-01-01 open Expenses:Payroll:EmployerTaxes:FUTA      USD
2025-01-01 open Expenses:Payroll:EmployerTaxes:State     USD
2025-01-01 open Expenses:Benefits:HealthInsurance        USD
2025-01-01 open Expenses:Benefits:HSA                    USD
2025-01-01 open Expenses:Benefits:Retirement:Match       USD
2025-01-01 open Expenses:Taxes:State:S‑Corp              USD  ; e.g., CA 1.5% entity‑level tax
2025-01-01 open Expenses:Taxes:State:Franchise           USD  ; e.g., CA $800 minimum franchise tax
2025-01-01 open Expenses:Professional:Payroll            USD
2025-01-01 open Expenses:Professional:Accounting         USD
2025-01-01 open Expenses:Professional:Legal              USD
2025-01-01 open Expenses:BankFees                        USD
2025-01-01 open Expenses:Software                        USD
2025-01-01 open Expenses:Office                          USD
2025-01-01 open Expenses:Meals                           USD
2025-01-01 open Expenses:Travel                          USD
2025-01-01 open Expenses:Insurance:GeneralLiability      USD

; === Example: Owner capitalization =================================================
2025-01-02 * "Owner" "Initial capital contribution"
  Assets:Bank:Checking                        25,000.00 USD
  Equity:ContributedCapital                  -25,000.00 USD

; === Example: Customer payment =====================================================
2025-01-15 * "Stripe" "January subscription receipts"
  Assets:Bank:Checking                        12,000.00 USD
  Income:Sales                               -12,000.00 USD

; === Example: Monthly payroll (single shareholder‑employee) ========================
; Numbers chosen to balance perfectly. Adapt FIT/State numbers to your reality.
; Gross wages: 8,333.33 | Employee FIT: 1,200.00 | State Withholding: 300.00
; Employee FICA (6.2%): 516.67 | Employee Medicare (1.45%): 120.83
; Employer FICA: 516.67 | Employer Medicare: 120.83
; Net pay: 6,195.83
2025-01-31 * "Gusto" "Jan payroll — shareholder‑employee"
  Expenses:Payroll:Wages                         8,333.33 USD
  Expenses:Payroll:EmployerTaxes:FICA              516.67 USD
  Expenses:Payroll:EmployerTaxes:Medicare          120.83 USD
  Liabilities:Payroll:Federal:FIT               -1,200.00 USD
  Liabilities:Payroll:Federal:FICA              -1,033.34 USD  ; employee + employer
  Liabilities:Payroll:Federal:Medicare            -241.66 USD  ; employee + employer
  Liabilities:Payroll:State:Withholding           -300.00 USD
  Assets:Bank:Checking                          -6,195.83 USD

; === Example: Payroll tax deposits (EFTPS & State) =================================
2025-02-15 * "EFTPS" "Federal payroll deposit (FIT, FICA, Medicare)"
  Liabilities:Payroll:Federal:FIT                1,200.00 USD
  Liabilities:Payroll:Federal:FICA               1,033.34 USD
  Liabilities:Payroll:Federal:Medicare             241.66 USD
  Assets:Bank:Checking                          -2,475.00 USD

2025-02-16 * "STATE DOR" "State payroll withholding"
  Liabilities:Payroll:State:Withholding            300.00 USD
  Assets:Bank:Checking                            -300.00 USD

; === Example: Health insurance for >2% shareholder =================================
; Coordinate with payroll so the annual premium total is included in W‑2 Box 1.
; The premium itself is deductible here; do NOT withhold SS/Medicare on it when handled properly.
2025-02-01 * "BlueCross" "Shareholder health insurance (W‑2 inclusion handled by payroll)"
  Expenses:Benefits:HealthInsurance                600.00 USD  ; w2: "true"
  Assets:Bank:Checking                            -600.00 USD

; === Example: Owner distribution (not wages) =======================================
2025-03-31 * "Owner Distribution" "Q1 distribution"
  Equity:Distributions                         20,000.00 USD
  Assets:Bank:Checking                        -20,000.00 USD

; === State examples (delete/edit if not applicable) =================================
; California minimum franchise tax (not always first year; check rules)
2025-04-15 * "California FTB" "Annual franchise tax"
  Expenses:Taxes:State:Franchise                   800.00 USD
  Assets:Bank:Checking                            -800.00 USD

; California S‑Corp 1.5% entity‑level tax (example estimate payment)
2025-06-15 * "California FTB" "S‑Corp tax estimate"
  Expenses:Taxes:State:S‑Corp                    1,500.00 USD
  Assets:Bank:Checking                          -1,500.00 USD

; New York separate S election (CT‑6) has no direct ledger impact; placeholder note.
2025-01-05 note Equity:RetainedEarnings "NY S‑election (CT‑6) filed — bookkeeping note only (no entry)"

; === Basis tracking (optional — off‑book memo) =====================================
2025-12-31 note Equity:RetainedEarnings "Basis rollforward: +Capital 25,000 +Income 60,000 −Distributions 20,000 = End basis 65,000 (reconcile to K‑1)"

; === Import hints (CSV from Gusto/ADP) =============================================
; - For Gusto payroll register CSVs, map columns:
;   Gross Pay -> Expenses:Payroll:Wages
;   Employee FIT/FICA/Medicare -> Liabilities:Payroll:Federal:FIT/FICA/Medicare (negative)
;   State Withholding -> Liabilities:Payroll:State:Withholding (negative)
;   Employer FICA/Medicare/FUTA/SUTA -> Expenses:Payroll:EmployerTaxes:* (positive) AND
;       if your CSV lists employer taxes as amounts owed, mirror them as Liabilities:* (negative),
;       then clear with your EFTPS/state payments.
;   Net Pay -> Assets:Bank:Checking (negative, matches pay date)
; - Health insurance paid by company:
;   Vendor payment -> Expenses:Benefits:HealthInsurance (positive) / Bank (negative);
;   ensure payroll includes the annual premium in W‑2 Box 1 for >2% shareholder.
;
; Tips:
; - Keep distributions out of payroll accounts.
; - Use tags like #payroll #distribution to filter in Fava.
; - Consider separate bank subaccounts for tax set‑asides (federal/state).