- Have you watched any videos
where they talk about setting up five LLC bank accounts,
that that's how you should run your business?
Well, in this video,
I'm going to show you why that is a huge mistake
and could cost you dearly.
All right, let's get started.
Okay, so that's the thing, you know,
there's a lot of people out there on the internet,
I came across a few videos
where they were telling individuals,
when you set up a Limited Liability Company,
you need to create five bank accounts.
And these people who promote the five bank accounts
typically tell you that you need an account
such as a revenue account,
so all your general revenue from your business
will go into that account,
and then you have a savings account
that you can move money off into,
and then of course you got an account for taxes,
so then you put money into an tax account,
and then maybe you need a payroll account on top of that
if you're paying payroll.
And then they could break down into things
such as reinvesting,
or experimental account you should have on the back end,
so you put more money over there.
Now, I get it, you know, having multiple accounts,
maybe for some people,
adds structure to their lives and their business,
and it may make things easier for them
when it comes to running their business,
because it gives them some self-control and discipline
over how they spend their money.
But at what cost is that
when you set up five bank accounts
and you run that type of LLC?
I mean, what is the potential ramifications for doing that?
Well, this is the issue that I have
with this five bank account approach,
is that when it comes to running a business,
one of the things that we talk about a lot
is that, when you set up an LLC, right here,
or any business, okay, that you're running,
the number one mistake that business owners make
when it comes to running their business
is they own assets, okay,
where they conduct business.
Conduct business.
Okay, this is the number one mistake we find
time and time again with business owners
when we start working for them,
that they have an active business,
and they have assets inside of there.
So, what am I referring to here?
Really simple.
Let's say that I had a business
that was involved in residential assisted living.
So, I have people that are coming,
I'm renting out rooms to them,
I'm providing some care services to individuals,
assisted living,
and I end up buying the property
in the name of my residential assisted living LLC.
Well, the problem with that is that if something goes wrong
with one of those patients, or not patients, but residents,
and they're hurt, maybe they pass away,
they wander off and they're struck by a car,
and they have dementia,
the family members are going to sue the business.
And of course, when you sue this LLC,
the assets of the LLC are going to be at risk,
and one of those assets is going to be this property,
maybe that property's worth $600,000.
Well, by putting that asset inside of your business now,
you have risked that asset to your business's liabilities.
So, this goes back to that five bank account thing
that people are talking about,
where I see a huge problem with following that methodology.
You see, when you set up your LLC here,
and you have these five bank accounts
that you've created for yourself,
you're going to spread your money out
amongst all these accounts.
Maybe you have $400,000 spread out
amongst these five separate accounts.
Well, that's a lot of money to keep inside of your business,
and depending on what type of business you're engaged in,
you know, there is liability out there,
and if you were involved in,
let's say a car accident while you're conducting business,
maybe you have a part-time employee,
maybe there's some discrimination claim
that's brought against you,
or a harassment claim that's brought against your business,
well, then all of those accounts are in your LLC name,
so now they're all at risk.
I remember a client I worked with years ago,
this exact same strategy came back to bite them,
because what had occurred
is two ex-employees had filed a claim against the business
asserting that the business owner didn't pay him overtime,
they worked him and didn't pay any overtime,
and so now he wanted to hold the business accountable,
and they were going after it,
and they were asking for a million dollars in damages.
Now, all of his cash now was tied up in this business,
in these multiple accounts,
and when he reached out to me said, "What do I do?"
Well, see, that's just the problem,
when you adopt this methodology,
then you've put all those assets at risk,
and there's nothing you can do.
So, how do you then take the five bank account approach,
if that's what you want to do,
but also put yourself in a position
where you can protect these assets from potential creditors?
Well, here's what I'd like to do
with that five bank account approach,
if people are going to adopt it,
and with the money you make in your business.
So, what I would do is create a secondary LLC over here.
I'm going to set this up in Wyoming,
I'm going to call this my Wyoming LLC,
I'm going to call it my banking LLC,
that's just, it's not going to be titled that,
but I just want you to think about this for a moment.
So, you make money in your business on this side.
Now, you take out your money,
maybe you leave a little bit in the operating account,
you leave 50,000 in the account,
and you pull the 350k out of this business.
So what I would do is I would have one account,
maybe two accounts,
I'd have a payroll account here,
so I would have two accounts in my business,
one is my revenue account,
and my second is my payroll account.
Okay? So I'd have two accounts there.
So, I would keep 50k between these two accounts,
or whatever that number is that you need
to make sure you can make payroll on the next cycle.
Pull the rest of the money out, put it in your name,
then turn around and move that money over here
into your banking LLC.
Now, with your banking LLC,
if you need to have an experiment account,
if you need to have a reinvesting account,
if you need to have a tax account, or a savings account,
great, create as many different accounts as you want
in this Limited Liability Company.
You see the liability for your business is right here,
this is the entity that if the lawsuit's going to hit,
it's going to hit that entity.
And what we don't have
is a lot of cash sitting inside of this entity.
Where you want your cash
is over here in this entity right here.
The reason we want our cash over here
is that this entity has no liability,
because it's not doing anything to bring liability to it.
So we want to make sure that we're putting our assets, okay,
in an entity that does not have liability.
So, now my money's over here in this banking LLC.
So, say you run into a few tough months
where sales aren't where they're supposed to be,
and this $50,000 account now is sitting at,
oh, I don't know, let's say it's down to $5,000.
Well, if you've got over here, 350k,
don't worry,
you can always loan money back to your business.
Now see, this is one strategy
that I think every business owner should highly consider
when it comes to structuring their business.
By creating this cash LLC on the side,
and keeping your cash account low in your active business,
so you're not putting those assets at risk
and parking them over in the Wyoming LLC,
you are actually building a stronger asset protection plan
for yourself by doing this.
Because what you'll do
is when you take the money out and you put it in your name,
and then you put it over here,
when you need to put money back into your business,
you do it via a loan from your Wyoming LLC.
Now, when you loan money to your operating business,
the orange box here,
your Wyoming LLC will file a UCC1 financing statement.
Guys, this is so simple, it's one piece of paper.
You record that piece of paper.
Let's say my business here is in Ohio,
I'll record it with the Secretary of State,
or wherever they require it in Ohio,
record this one piece of paper.
Now, if I've loaned my business here $100,000,
I now have secured that loan
against any assets inside of this business.
So if I have a vehicle inside of that business,
if I have, you know, computers, things like that,
my bank account, what's ever in my account,
up to $100,000,
if a creditor were to sue this business,
then the first $100,000 goes back to my Wyoming LLC.
Now you can keep loaning money.
So now it comes times for taxes.
Maybe have an $80,000 tax liability.
Here's what I do.
I loan 80,000 over to this Limited Liability Company, right?
And then I use that to pay my taxes out of this business.
There's another loan.
There's the UCC1, that's going to protect that as well.
So now I've protected $180,000 of this business.
You see, the five bank account strategy
that people talk about, the problem is,
is they don't account for liability.
That if something goes wrong with your business,
all of that cash that you're generating is going to be at risk.
But it's a simple strategy,
all you need to do,
set up a Wyoming LLC,
treat it as what I call my banking LLC,
move the money to yourself, put it up in there,
and just start making loans back to yourself as you need it.
You can do all the same things,
have as many accounts as you want in the Wyoming LLC,
but it puts you in a stronger financial situation
in the event of a lawsuit.
Hey, if you want to learn more
about how to structure your business?
We teach a one-day tax and asset protection workshop,
it's completely free for you to attend.
If you look in the show notes,
I do have a link where you can register,
get registered for it.
They're typically held on Saturdays at these events.
You're going to learn all about Limited Liability Companies,
corporations, how to structure 'em for real estate,
how to structure 'em for your business.
And then we're going to teach you the tax side
of running a business,
and all the various ways in which you can use the tax code
to put more money back in your pocket.
And what makes this event even more special
is the fact that, on the event,
we bring our attorneys and CPAs to the event
to answer your individual questions.
So, whatever you have, you've been thinking about,
"Hey, should I be setting up a land trust?"
"Does an LLC, does a C-Corp make more sense
than a traditional S-Corporation, Inc.?"
Come to the event with those questions, they'll be answered.
We typically answer 1,400 questions on the event,
people definitely leave there in a better place
than when they started,
and I look forward to seeing you there.