Escape the 'One-Account Illusion': cash management controls for growing startups

The First Fix: How to Set Up Bank Accounts to Avoid the 'One-Account Illusion'

That first big funding round hits the bank, and for a moment, the number is all that matters. But reality quickly sets in. That single pool of cash needs to cover payroll, taxes, R&D, and marketing, offering no real insight into your true operational runway. All cash pooled in one bank account makes it impossible to see what is truly available to spend versus what is already committed. Without clear rules, spending can quickly spiral. With shared admin access, the risk of a simple mistake or a targeted fraud attempt is uncomfortably high. Setting up bank accounts and payment approvals for startups is not about adding bureaucracy. It is about building a financial foundation that enables speed and protects the company as it scales.

The most common early-stage mistake is operating under the 'One-Account Illusion,' where the total cash balance is mistaken for the company’s runway. This single number hides critical obligations, making it easy to accidentally spend money earmarked for payroll or taxes. The reality for most pre-seed to Series B startups is more pragmatic: you need a simple system to segregate funds for different purposes. The fix is a multi-account structure. This is the digital envelope system.

At its core, this involves creating at least three distinct bank accounts for managing multiple business accounts effectively:

1. Treasury or Reserve Account: This is where your investment capital or major revenue collections land. It’s the company’s main reserve and should not be used for daily operational spending. Its primary purpose is to hold funds securely, often in a higher-yield savings or money market account to generate a small return.
2. Operating Account (OpEx): This is your day-to-day checking account. You fund it from the Treasury account on a regular cadence, such as weekly or monthly. This transfer acts as your live budget. If you move one month’s burn rate into this account at the start of the month, you have a real-time, tangible view of your spending against budget.
3. Payroll and Tax Account: This account holds funds specifically for employee salaries and tax liabilities, like PAYE and VAT in the UK or payroll taxes and state sales tax in the US. You fund it from the Operating account just before running payroll or making tax payments, ensuring this critical cash is always ring-fenced.

Consider Acme SaaS Co., a fictional startup that just closed a $5M Series A round. They immediately move the $5M into a new Treasury account. Their monthly burn is $400k. On the first of each month, they transfer $400k from Treasury to their Operating account. This is the budget the team has to work with. Before their bi-weekly payroll run, they transfer the exact amount for salaries and payroll taxes from the Operating account to the Payroll and Tax account. This structure provides immediate clarity and control, a positive signal to investors during any future due diligence.

Modern banking platforms like Mercury, Relay, and Brex are designed for this kind of startup bank account setup. They make it easy to create virtual accounts and automate these transfers, turning a manual chore into a reliable, automated process.

Establish a Clear Payment Authorization Process

Once cash is organized, the next challenge is managing how it gets spent. Missing or vague payment approval limits are a primary cause of budget overruns, allowing staff or even founders to commit to expenses without a formal check-in. The solution is a payment authorization process defined by a clear approval matrix. The goal is empowerment, not bureaucracy; you want to give your team the autonomy to make decisions within defined boundaries, allowing the business to move faster.

An approval matrix establishes tiers of spending authority. It defines who can approve expenses of different sizes, ensuring that larger commitments receive more senior oversight. This is fundamental for effective cash flow controls for startups.

Here is a simple, scalable approval matrix for Acme SaaS Co.:

• Tier 1: Spends under $1,000. Approval by the Department Head or budget owner. This allows team leads to acquire necessary tools and resources without friction.
• Tier 2: Spends from $1,000 to $10,000. Requires approval from a VP or Founder. This covers more significant commitments like software contracts or event sponsorships.
• Tier 3: Spends over $10,000. Requires approval from the CEO or a Co-founder. This tier is for major strategic expenses that have a material impact on the company's cash runway.

This structure brings immediate order. For example, Acme’s marketing lead wants to sign up for a new analytics tool costing $500 per month. Under this matrix, they can approve that Tier 1 expense themselves, without waiting for a founder. However, when the VP of Sales wants to book a $15,000 sponsorship for an industry event, that Tier 3 expense requires CEO approval. This ensures strategic alignment on significant cash outlays.

This isn't just theory. Generic industry reports show that companies with formal approval policies are significantly less likely to experience budget overruns. Implementing this doesn't have to be manual. Spend management tools like Ramp, Brex, or Bill.com are built to automate these workflows. You can configure the approval matrix directly in the software, issue corporate cards with built-in limits, and digitize the entire payment authorization process, from invoice receipt in your accounting software like QuickBooks or Xero to final payment.

Implement Smart Access Controls and Segregation of Duties in Finance

With accounts structured and approval rules defined, the final layer of protection involves managing who can access and move money. A common vulnerability is having multiple founders or employees with full admin access to the company’s bank account. This single point of failure exposes the company to both accidental risk, like a mistyped wire transfer, and external fraud.

This is where two key principles become essential for preventing fraud in startup finances: Dual Control and Segregation of Duties. Dual Control: A security principle stating that no single individual can unilaterally execute a critical financial transaction. Segregation of Duties: A broader practice of dividing financial responsibilities among different people to prevent any one person from controlling a process from end to end.

Applying the principle of Segregation of Duties involves assigning different user roles within your banking and payment systems. Typically, these roles include:

• View-Only: Allows a user to see balances and transactions but not move money. This is useful for junior finance staff or external accountants who need visibility without control.
• Initiator: Can set up a payment, for example, by entering wire details and the amount, but cannot approve it. This role is often assigned to an accounts payable specialist or an operations manager.
• Approver: Can approve a payment that has been initiated by another user. Crucially, they cannot initiate and approve their own payment, creating a natural checkpoint.

Strong financial controls also reduce bribery and corruption risk. Transparency International provides practical guidance on control design to mitigate that risk. A scenario we repeatedly see is a founder receiving a sophisticated phishing email that looks like a legitimate request from a vendor. Without dual control, they might accidentally send a large sum to a fraudulent account. With it, they would initiate the payment, but the second approver would provide a crucial checkpoint to catch the error. The Association for Financial Professionals (AFP) consistently flags Business Email Compromise (BEC) as a primary fraud vector that dual controls are designed to prevent.

For an early-stage company, a pragmatic starting point is to enforce dual control on all wire transfers above a certain threshold. A common threshold for requiring dual control on wire transfers at the Seed stage is around $25,000. For US companies using ACH or UK companies using Bacs, the risk is lower, but dual controls are still best practice for larger amounts.

A Stage-by-Stage Playbook: How to Set Up Bank Accounts and Payment Approvals as You Grow

Implementing financial controls should align with your company's stage of growth. The system should evolve as your team and financial complexity grow, ensuring controls are robust but not restrictive.

Pre-Seed and Seed Stage

At this early stage, simplicity and control are key. Your focus is on establishing a solid baseline.

• Accounts: Your immediate priority is the three-account 'digital envelope' system: Treasury, Operating, and Payroll/Tax. This is the foundation for everything else, providing instant clarity on cash allocation.
• Approvals: The approval matrix is informal and likely just involves the founders. The key rule is that non-founders cannot approve any spend without a founder's direct sign-off.
• Access: Founders may still have admin access, but you should enable dual control for any wire transfers. For a two-founder team, this means one initiates and the other approves. This can be managed directly within most modern banking platforms.

Series A

With a larger team and more significant capital, processes must become more formal.

• Accounts: The three-account system remains, but you may add dedicated accounts for specific purposes, such as restricted grant funds common in Biotech or Deeptech, or customer deposits in certain business models.
• Approvals: Formally document and implement your tiered approval matrix. This is the stage to adopt a spend management platform to automate enforcement. In QuickBooks (US) or Xero (UK), you can set up corresponding tracking categories or classes to monitor departmental spend against budget.
• Access: The finance function begins to formalize with an Operations or Finance lead. It is now critical to implement role-based access controls (Initiator, Approver, View-Only) in your banking and payment systems. The founders should no longer be the sole approvers for smaller, day-to-day expenses.

Series B and Beyond

At this stage, your financial operations should be sophisticated and audit-ready. Your finance team roles and responsibilities are more clearly defined.

• Accounts: Your account structure may become more complex, potentially with separate accounts for different currencies to manage foreign exchange risk or distinct business lines to simplify reporting.
• Approvals: The approval matrix becomes more granular, with more tiers and specific departmental budget owners. The finance team, now likely including a Controller, takes primary ownership of the process.
• Access: Segregation of duties becomes more rigid. The person who can add a new vendor in Bill.com should not be the same person who can approve a payment to that vendor. These controls are no longer just best practice; they are expected by auditors and late-stage investors operating under standards like US GAAP or FRS 102.

Building a Foundation for Scale

Building robust cash management controls is not about slowing your startup down. It is about creating a stable platform for rapid, sustainable growth. By moving from a single bank account to a purpose-built structure, you gain immediate clarity on your true runway. By establishing a clear payment approval matrix, you empower your team to spend responsibly without constant founder intervention. And by implementing dual controls and smart access roles, you protect your company’s most vital asset from error and fraud. These steps are foundational to how to set up bank accounts and payment approvals for startups, building the financial discipline that enables scale and fosters investor confidence. Continue at the hub for setting up your finance function.

Frequently Asked Questions

Q: How many business bank accounts do startups really need?
A: Most startups can achieve strong control with three core accounts: a Treasury account for large deposits, an Operating account for daily expenses, and a Payroll and Tax account. This "digital envelope" system separates long-term reserves from short-term operational cash, providing immediate clarity on your true runway.

Q: What is the difference between dual control and segregation of duties?
A: Dual control requires two people to approve a single transaction, like a wire transfer. Segregation of duties is broader, separating tasks so no one person controls a whole process. For example, the person who adds a new vendor cannot also be the one who approves payments to them.

Q: At what stage should we implement a formal payment authorization process?
A: You should formalize your payment authorization process around your Series A funding round. As the team grows beyond the founders, documenting approval tiers in a matrix and using spend management software prevents budget overruns and empowers department heads to make decisions within clear, pre-approved limits.