The Round Treasury Complete Guide to: Bank Accounts

It depends on where you are in your company’s lifecycle. A pre-seed founder depositing their first £500K should focus on making payroll and avoiding the mingling of personal and business accounts. Meanwhile, a Series D CFO with £300M should prioritise yield and security. Here’s a guide to navigating cash management in the UK, tailored for every stage of your startup journey.

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1. Early Stage (Pre-Seed/Seed)

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Up to £10M in revenue, up to 75 employees

• Who’s in Charge of Cash: Founders

(Early on, you don’t need a full-time finance person – there’s simply not enough happening day-to-day. So, the banking responsibilities fall on you, the founder.)

• Number of Bank Accounts: 2
• Number of Banking Institutions: 1-2

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Recommended Accounts

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Current Account:

1. This is your go-to for day-to-day expenses, payroll, receiving payments, and paying bills.
2. Keep only 2-3 months of operating expenses here. Don’t overstuff it – you don’t want all your cash sitting idle.

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Savings/Treasury Account:

1. This is your safety net. Segregate funds for emergencies or future investments.
2. Keep excess cash here beyond the 2-3 months of operating expenses.
3. Place in interest bearing savings accounts or money market funds.

Recommended: Round Treasury

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Key Considerations

• Liquidity Management: You need access to cash quickly. Shit happens fast when you’re a startup. You don’t want to be scrambling for cash when it does.
• Cash Flow: Pay and get paid.
  • Receivables: Managing outstanding amounts owed to you from customers.
  • Payables: Paying vendors on time to get the best terms, and establishing a rhythm of who at the company cuts the checks, and when it gets done.
• FX Fees: You’ll probably be paying some bills and/or employees in another currency, or of you’ve raised in a different currency. Make sure you’re not getting fleeced.

NB: Ask for funding in your operating currency.

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Must Do’s (Boulders)

• Liquidity Management: Never run out of money. Monitor cash flow weekly. Most businesses die because they run out of money,.
• Simple Banking Structure: Keep it straightforward. You need a current account and a savings account, that’s it.
• Payroll: Ensure timely and correct payment of employees and contractors. It’s the backbone of employee satisfaction.
• Getting paid: Keep a spreadsheet of all customers and terms and manage it out of one system like Xero.

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Important (Rocks)

• Cards: Issue physical and virtual credit cards only to key personnel. Credit cards are a double-edged sword. They’re essential, but you must control who has access.
• Financial Controls: Don’t share bank logins. Make sure one person sets up wires and another approves them.

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Keep in Mind (Pebbles)

• Building Relationships: Start nurturing relationships with financial institutions early. They can be valuable partners as you grow.
• Interest: Any interest earned is a bonus. Your job is to build a company, not play treasurer. But a little interest can go a long way.

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2. Growth Stage (Series A-C)

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• Company Size: £10M to £75M in revenue, 75 to 500 employees
• Who’s in Charge of Cash: First finance leader, ranging from a part-time bookkeeper to a VP of Finance or CFO.
• Number of Bank Accounts: 3 to 5
• Number of Banking Institutions: 2 to 3

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Recommended Bank Accounts

1. High-Interest Savings or Money Market Accounts:
   • Move surplus funds here to get better returns. Don’t let your cash sit idle.
2. Foreign Currency Accounts:
   • If you’re doing international business, this helps minimise exchange rate risks.
   • You’ll need this if you have full time employees outside of the UK. They’ll want to get paid in their local currency (for example, we have employees in Germany so we make sure we have a EUR current account).
3. Specialised Accounts (Escrow, Trust, or Investment Accounts):
   • Essential for managing specific transactions or investments.

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Key Considerations

• Safety: Don’t keep all your eggs in one basket. Spread your funds across multiple accounts.
• Controls: Implement proper checks and balances. By Series C, you shouldn’t have the same person setting up and approving wires. Segregation of duties is crucial as you grow.
• International Footprint: Local banking is essential for international operations. Establish accounts in the currencies you deal with.

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Must Do’s (Boulders)

• Payroll: This remains your top priority. Pay your people first. Always.
• FX: Forecast how much you need in a given currency, and buy ahead. Efficient operations drive growth.

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Important (Rocks)

• Treasury Optimisation: Explore better banking services and negotiate fees. Don’t be afraid to switch banks if you get better terms elsewhere.
• Financial System Enhancements: Invest in advanced financial systems to scale with your growth.

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Keep in Mind (Pebbles)

• Investment Strategy: Start thinking about higher-yield investments. Once you have 18 months of runway, you can afford to take some calculated risks.

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3. Maturity Stage (Series D to Public)

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• Company Size: Over £100M in revenue or more than 500 employees
• Who’s in Charge of Cash: Treasurer
• Number of Bank Accounts: 5 or more
• Number of Banking Institutions: 3 or more

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Recommended Bank Accounts

1. Multiple Current/Savings Accounts with Multiple Institutions:
   • Segregate funds for different purposes like payroll, taxes, and operating expenses.
   • Diversify where you keep your cash to mitigate risk.
2. Investment Accounts or Corporate Investment Portfolios:
   • Once you have a significant cash runway, start considering more complex investment strategies.
3. Multiple FX Accounts:
   • Essential for handling transactions in different currencies efficiently.
4. Retirement Accounts for Employees:
   • Offering retirement benefits becomes essential for attracting and retaining talent.
5. Escrow Accounts for Large Transactions:
   • Ensures security and trust in large business deals.

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Key Considerations

• Visibility: Use treasury software to get a daily overview of your total cash position. Having a clear view of your cash is non-negotiable.
• Strategic Capital Allocation: Plan for potential mergers and acquisitions. Keep your options open and be ready to act.

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Must Do’s (Boulders)

• Treasury Management Policy: Outline guidelines for managing the company’s cash and investments. A well-defined policy is key.
• Global Cash Management: Manage multiple accounts across international locations efficiently.

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Important (Rocks)

• Debt Financing Strategies: Prepare for various funding options. Stay ahead of your financing needs.

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Keep in Mind (Pebbles)

• M&A Readiness: Keep records in order for potential acquisitions. Be ready to move quickly when opportunities arise.
• Compliance and Regulatory Considerations: Stay updated on regulations, non-compliance can be costly.

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By following these guidelines, UK startups can effectively manage their cash flow and ensure financial stability throughout their growth journey. Remember, cash is king, and you’re its loyal subject. Manage it wisely and your kingdom will thrive.

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Red flags

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Mixing Personal and Business Funds

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When UK startups raise their first round of funding, setting up a bank account often becomes a last-minute scramble.

• This rush can lead to the major mistake of mixing personal and business funds.
• This happens when you mix your personal and business finances.
• Imagine being excited about receiving a wire transfer from an investor, only to be stuck waiting weeks for bank approval. Not ideal.
• I understand, compliance and KYC forms can be a nightmare when you just need a straightforward account for payroll.
• But trust me, untangling this mess later is a headache (especially during due diligence for mergers and acquisitions), and expect a stern talking-to from your auditors.

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Overcomplicating with Sweep Accounts

• Sweep accounts transfer surplus cash from your current account to a higher-yield investment account (like a money market account) at the end of each day.
• Businesses set a minimum balance, and any extra cash is “swept” into an investment vehicle.
• Here’s where it can go wrong:
  • Being too aggressive with sweeps: Trying to maximise interest returns when flexibility for large payments should be the priority.
  • The fees for running a sweep account might outweigh the interest benefits, particularly in a low-interest rate environment.
  • I often advise founders and first-time finance leaders to scrutinize the effective rate of their sweep accounts – the benefits might not justify the costs.
  • Banks in the UK can be overly aggressive in pushing sweep accounts on early-stage founders, making them sound more beneficial than they actually are.

The moment you have to worry about whether there’s enough money in your current account to cover a payment, you’ve overstepped.

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A quick history lesson: Sweep accounts were originally devised to circumvent a regulation that limited UK banks from offering interest on commercial current accounts. Sneaky, right?

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Disclaimer

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The content in this article is provided for general information purposes only and does not constitute financial advice. The information presented here should not be construed as a recommendation to buy, sell, or hold any investment or security, nor as an endorsement of any particular financial strategy. Always consult with a qualified financial advisor before making any investment decisions. Investing involves risks, including the potential loss of capital. Past performance does not guarantee future results.

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