8 Steps to Managing Your Business’ Money:
Step 7 – Selecting a Bank
In managing your business funds, you may not think that which financial institution you use matters. In fact, this is one of the most important relationships you will have as a small business owner. In his series on www.startupnation.com, Rich Sloan discusses what to analyze before selecting a bank.
Look for fees by reviewing the “fine print” on the business accounts available from several banks. Ascertain whether there are costs for opening the account and monthly service fees, as well as what the charges are for situations like insufficient funds. Since all banks calculate rates differently, find an institution whose fee structure best matches what you expect from your company’s operations.
At a minimum, the first book of checks should be provided free. If you aren’t even offered that small consideration, skip this bank and find another!
Earning as much as you can on funds you aren’t using at the moment is important, so evaluate what types of interest-bearing account options the bank provides and what degree of liquidity is associated with them. Interest-bearing checking accounts are sometimes available, although the yield on them is low and you may have to hold a minimum monthly balance.
Savings accounts–often called money market accounts–can be tied to checking and offer better interest. You need to determine both how easy it is and whether restrictions apply to moving funds from here to your checking account when you need money for operating your business.
Sweep accounts allow you to maintain a specified balance in checking and have any amount over that automatically be deposited into an interest-bearing account. These always require a minimum balance and frequently have fees associated with them.
The highest interest rate but also the lowest liquidity is available by utilizing CDs or similar investments. To be able to employ them, you must have enough cash flow to allow the invested funds to be inaccessible for months or even years.
Online banking is a necessary convenience for the busy entrepreneur. It allows you to move your money quickly from account to account and to pay many of your bills closer to the due date while saving time and postage.
Often creditors will make available an automatic payment option, which assures that the amounts due are paid in a timely manner. Many banks will notify you of pending withdrawals and deposits, which can help you to better allocate your funds.
Furthermore (as discussed in step 4 of this series), the bank may offer a link or a downloadable document that can be easily incorporated into an accounting spreadsheet. This saves you or your bookkeeper valuable time. Just be sure that these features are profitable for your business by carefully assessing any related banking costs.
Other elements to consider are the following:
- Overdraft protection can save you a charge of $35 to $50 on a returned check, as well as protecting your credit. Some banks will allow savings or other accounts to cover any shortfalls in your checking account. A reasonable fee ($10 or so) is acceptable for this valuable service.
- Business credit cards are important, as discussed in part 5 of this series. It is equally vital, however, to assure that the one available through your bank offers the best combination of rates and benefits for your business situation.
- Lines of credit give you the flexibility to tap funds quickly. The bank will require that you either be the personal guarantor or can promise business assets as collateral.
- Consolidate your personal and business accounts with the same bank so that you have the flexibility to transfer easily and at a low cost between them as required. Just be sure to keep thorough and accurate records of these transactions, and avoid commingling of funds.
Next will be the final installment of this series: Step 8 -Taxes!
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