Financial management is an entrepreneur’s top priority — especially when running a small, relatively new company. Unfortunately, most small businesses fail within 10 years of opening their doors. The reason 82% of business owners gave for closing down? Cash flow management problems. What can you do to optimize cash flow and keep better track of the money flowing in and out of your business? For one, establish a dedicated business bank account to separate company and personal financial activity.
Yet, you’ll also need to choose a bank that meshes with your entrepreneurial goals and financial needs. A business checking account is crucial for managing day-to-day transactions, maintaining separation between personal and business finances, and facilitating smoother cash flow management. And once you establish your accounts, be sure to manage them wisely.
Choose the Best Bank for Your Small Business Banking Needs
One mistake many small business owners make when opening an account is to assume the bank that handles their personal accounts is also the correct bank for their business. This may be the case, but it’s crucial to first shop around and then explore your options. Reflect on your small business banking needs, including what services and other criteria you are looking for in a bank. For example, you may want the personalized service of a small credit union where everyone knows your name. Or you may be looking for an extensive banking network with convenient branch locations and ATMs located along every city block. If you need small business financing, ask about available lines of credit and loan products along with any qualification requirements. And crucially, learn about their minimum balance requirements and low balance penalty fees, too. These costs can rapidly chew up profits if you lack adequate sales volume to offset them.
2. Be Aware of Fee Schedules
When you first open your business banking account, you’ll receive a fee schedule that is crucial for managing your business finances. Study it carefully and remain alert to schedule updates so that escalating costs don’t catch you off guard. Fees to look for include:
- Overdraft protection or NSF fees — These are penalties the bank imposes for spending more than you have in your checking account.
- ATM fees — These are costs associated with using your debit card at out-of-network ATMs.
- Paper statement fees — Banks levy these added costs if you opt for having paper statements mailed to your firm. Avoid these by signing up for electronic delivery.
- Foreign transaction fees — When you use your debit card overseas, you could be hit with these charges. They are often calculated as a percentage of each transaction.
- Wire transfer fees — When you send money directly to an account at another bank, your financial institution may hit your account with this fee.
- Online bill pay fees — Some banks charge a flat fee for each transaction made using their online bill pay feature. Others may only levy a monthly charge if you’re signed up but don’t use their service.
3. Reconcile Your Statements Monthly
Compare your business bank statements against your company ledgers every month — more frequently if you can, to ensure proper separation of personal and business finances. Make sure you recognize each transaction and then categorize them in your books. This allows you to immediately dispute incorrect activity and ensure your accounting is accurate and complete. Never put off your bookkeeping. The longer you wait between reconciliations, the more arduous the task becomes. It can also mean potentially damaging mistakes will go uncorrected.
4. Leverage Online and Mobile Banking Services
Most banks have mobile apps and numerous online services to make banking faster and easier for their customers. Employ these tools to save your business time and money:
- Bill pay services — Like personal checking accounts, business bank accounts typically come with online bill pay services. This allows you to pay vendors instantly without writing and mailing paper checks. Plus, you can set up automatic recurring payments for routine expenses that stay the same month to month.
- Online transaction ledgers — To reconcile your accounts anytime, review the up-to-date activity in your online banking app. This can help you track exactly how much money you have available, preventing account overdraws.
- Employee profiles — Unique to specific business bank accounts is the ability to grant employee access to your account. You can set up employee profiles and customize authorizations for more comprehensive control. Permit one employee to view transactions while authorizing another to withdraw and deposit funds.
- Additional online services — Online banking allows business owners to move funds between accounts, apply for loans, and deposit checks electronically from any mobile device or computer.
- Merchant services — A merchant services account enables businesses to accept credit and debit card transactions. This is an essential part of business banking, providing a convenient way for customers to pay and ensuring smooth financial operations.
5. Get to Know Your Banker
Even if you’re taking advantage of your bank’s online services, make sure you occasionally stop in your local branch. Establishing a relationship with your business banking partner as a business owner allows you to ask questions face-to-face and develop a connection with the bank’s employees. This will give you an edge when new support options and resources are made available. Further, with a stable banking connection, you’ll be better positioned to take advantage of prospective loans and lines of credit. Merely having an account in good standing may not be enough to acquire traditional business funding. When your banker understands your business and the person behind it, they may be more likely to loosen their purse strings for you.
