How to Set Up Business Bank Accounts for a Contracting Company
Getting your first contracting jobs is exciting. But as soon as customers start paying you, the money in your bank account can become misleading. Some of it belongs to suppliers, some may need to cover payroll and taxes, and some must keep the business running between jobs. A clear account structure helps you make decisions based on money that is genuinely available.
This walkthrough is for trades ranging from landscaping and remodeling to electrical, painting, HVAC, and general contracting. It covers personal/business separation first, then a practical introduction to the five-account Profit First method popularized by Mike Michalowicz.
Step 1: Keep personal and business money separate
Use your personal checking account for household bills and personal spending. Open a separate business checking account in your company’s appropriate legal name for customer payments and business expenses. Do not send customer deposits into a personal checking account or use a business card for groceries. If you personally pay a legitimate business expense, document it and ask your bookkeeper how to reimburse or record it.
The point is not merely convenience. Separation improves recordkeeping, tax preparation, cash visibility, and documentation of business transactions. The legal implications depend on your entity and jurisdiction; an LLC by itself does not replace insurance or proper bookkeeping.
Official reference: the IRS Starting a Business and Keeping Records guidance recommends maintaining a business checking account separate from personal checking.
Step 2: Gather what the bank needs
Ask your chosen bank what it needs for your specific business structure. Common items include legal formation documents where applicable, an EIN or other accepted taxpayer ID, ownership and signer identification, and initial funding. For a new LLC or corporation, complete required state formation before the federal EIN application when the IRS directs you to do so.
The EIN application is free through the IRS. Avoid third-party sites charging simply to obtain one. Compare business-account monthly fees, minimum balances, online transfers, ACH availability, mobile deposit, transaction limits, and the ability to name accounts. Ask whether your bank supports multiple checking or savings accounts without expensive fees.
Official starting points: IRS EIN application and the SBA guide to launching a business.
Step 3: Give collected cash five specific jobs
In Profit First, cash is divided among five foundational accounts. This is an established methodology associated with Mike Michalowicz, not a financial system invented by Contractors Collect.
1. Income
Customer payments arrive here first. Treat it as the collection and allocation account, rather than an invitation to spend the entire balance.
2. Profit
Regularly reserve an agreed portion as a return for owning the company. Profit is different from compensation for the work you personally perform.
3. Owner’s Compensation
Set aside money for the owner’s work in the business. How you legally pay yourself—wages, draws, or distributions—depends on business and tax classification, so verify the treatment with a CPA.
4. Tax
Reserve funds toward expected tax obligations. Business income taxes, payroll taxes, and sales or use taxes are different obligations; do not assume one percentage or account automatically handles them all.
5. Operating Expenses (OpEx)
Use this account for the actual cost of operating: approved materials purchases, wages, insurance, fuel, subcontractors, equipment, software, and other business bills. A cash balance is not the same as profit.
For the originator’s explanation of this system, read Mike Michalowicz’s five-account Profit First introduction.
Step 4: Run a sample allocation before using real money
Suppose your Income account has $5,000 of available collected cash that you have determined can be allocated after properly handling any restricted funds, immediately due job costs, and other applicable obligations. For illustration only, assume your chosen percentages are 2% Profit, 15% Owner’s Compensation, 10% Tax, and 73% OpEx.
That would transfer $100 to Profit, $750 to Owner’s Compensation, $500 to Tax, and $3,650 to Operating Expenses. The four transfers total $5,000. These are example arithmetic percentages—not recommended targets, and not a guarantee that $3,650 will cover labor or materials on your particular jobs.
Contractors often have large direct material and subcontract costs. A high-volume remodeling business will need different cash allocations than a solo service contractor. Work with a qualified bookkeeper or accountant to calculate a realistic allocation base and percentages, including how customer deposits, sales taxes, and committed project costs are treated.
Step 5: Choose a transfer rhythm and track your work
Pick recurring allocation dates, such as the 10th and 25th of the month, and set calendar reminders. Review collected funds, reserve amounts you owe, make the planned account transfers, and reconcile balances. Do not treat a customer deposit for unfinished work as safely spendable profit simply because it has cleared the bank.
Keep bookkeeping records separate from the bank accounts themselves. Maintain invoices, bills, receipts, owner transfers, payroll records, and each job’s budget-versus-actual costs. Even a simple spreadsheet can track job number, deposit received, remaining receivable, labor, materials, subcontractors, and gross profit.
Step 6: Build your professional support team in the first 60 days
Interview at least one bookkeeper who understands construction and service-business job costing. Find a CPA or tax professional who can review your business classification and tax reserves. Speak with an independent insurance agent who can compare suitable coverage across multiple carriers; verify that they understand the risks and certificates required in your trade. Look for a local or online group of business owners willing to discuss real operating practices, not just exchange business cards.
You do not need to hire all these people full time. A short professional consultation can keep simple startup decisions from becoming expensive problems later.
A quick bank-account checklist
Before your next customer payment: confirm your company registration and account-opening requirements; separate personal and business payments; select a bank that accommodates multiple business accounts; establish Income, Profit, Owner’s Compensation, Tax and Operating Expenses buckets where practical; choose allocation dates; and set up bookkeeping reconciliation. Some banks use savings or virtual subaccounts, so confirm account terms rather than assuming every bucket must be a checking account.
Download the full free contractor startup guide
The 12-page Contractors Collect Business Launch Checklist goes beyond banking. It also covers startup preparation, pricing, customer paperwork, basic Google tools, independent insurance agents, bookkeepers, networking, and the first 90 days. It is free, with no purchase required.
You can also browse our complete Free Contractor Resource Library, with estimating follow-up scripts, marketing guidance and client screening materials.
Educational content only. This article is not individualized banking, accounting, tax, legal, or insurance advice. Verify requirements with professionals familiar with your trade and location. Contractors Collect is not affiliated with Mike Michalowicz or Profit First Professionals.
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