Contact Us

Books & Benchmarks

Should You Use a Separate Checking Account for Payroll?

by | Mar 30, 2024

At Books & Benchmarks, we’re always looking for ways to streamline our operations and be more efficient. In working with over 100 practices across the country, we’ve seen firsthand the challenges optometry practices face in financial management.  

There’s a recent trend among some practices to use multiple checking accounts to budget, track, and control spending. And there’s a certain logic to it: if you only allocate so much to any given expense, you won’t spend more on that thing. It’s actually a good practice for household budgeting. 

For practices that run specific expenses through separate accounts, payroll is the most common. But why use a separate account? It could help you track payroll, but can it really control payroll spending? 

Payroll is an expense that you are going to pay. 

Think about it. Let’s say your budget says this week’s payroll should be $10,000. If you owe $10,500 based on your employees’ hours, you had better pay $10,500. You can’t not pay your team for the hours they worked. Well, we suppose you could try, but both your employees and the authorities will have something to say about it. 

Payroll management for optometrists starts with managing headcount and hours, not limiting the available cash to pay your people. In fact, there are two ways we have seen a separate payroll account backfire: 

  • Practices forget to add funds to the payroll account, causing an overdraft and delaying payroll. 
  • Practices have underfunded a payroll run, causing an overdraft and delaying payroll. 

Remember, every process step you add to your operations is one more step that can go awry. 

Do Not Confuse Activity with Accomplishment 

At the end of the day, having a separate account for payroll, profit, or cost of goods sold is just moving money around, money that would largely be spent in the same amount on the same things regardless of which account it flows through. 

Besides, our experience is that very few practices have a problem with excess spending (except on frames, but you can learn more about that in our blog on frame spending). It’s best to keep things simple: a single operating account from which you pay your bills and distribute excess cash regularly, such as every quarter. 

Sometimes “It Depends” 

A few exceptions should be mentioned. 

Separate accounts for large, predictable expenses like taxes, profit-sharing plan contributions, down payments, or new clinical instruments are a smart way to manage cash flow and plan ahead. Often, it’s better to hold these accounts personally for a better interest rate, but the principle holds either way. 

If you use paper checks for payroll, remember that the account number is listed on the checks. A separate account for payroll can protect you from fraud hitting your full operating account. Better yet, switch to direct deposit. 

Let the Chart do the Tracking 

Let’s close by revisiting the idea of using a separate payroll account to simplify tracking and reconciling expenses. At Books & Benchmarks, we use our optometry-specific chart of accounts which grosses up and breaks out payroll between owner ODs, associate ODs, and non-OD staff, whether you have one business account or ten (it’s a thing, why do you think we’re writing this?). 

To find out more about how we can help you simplify your financials, accurately account for expenses, and give you meaningful insights into your practice, schedule a discovery call

Subscribe to our Blog & Newsletter

Sign up to get our weekly blogs and quarterly newsletter all focused on understanding and managing the financial health of your business. Grow your business and gain clarity.

Please enable JavaScript in your browser to complete this form.