If you own a small business, you should open a business bank account to organise your finances.
While this may seem like a simple task, it requires good decision-making and careful thought.
According to www.businessnewsdaily.com, small business experts share some of the common mistakes startups make with their commercial accounts, and how you can avoid doing the same when opening your own.
- Incorrect or missing information at account setup
New small business owners and entrepreneurs frequently make the mistake of bringing the wrong paperwork to the account-opening appointment. Each bank may have different requirements; so when booking the appointment, ask the banking officer exactly what you’ll need to bring to the meeting.
“Don’t worry about assembling a great deal of business documents,” a small business specialist at personal finance website Money Crashers, David Bakke, says.
“In most cases, all you need is your tax document and other general information,” he adds.
- Not having a designated business account
According to a research conducted by Researchscape on behalf of Seed, 32 per cent of business owners aren’t separating their personal and business bank accounts.
“This can lead to serious accounting, tax and reporting challenges for business owners,” the Chief Executive Officer and co-founder of Seed, Brian Merritt, says.
“Save yourself problems down the line and separate your business and personal accounts from the get-go. You’ll decrease your legal liability, and your life will be a lot easier at tax time,” he adds.
- Not planning cheque-signing authorities
Rozbruch notes that small business owners often forget about planning for business cheque signing.
“They don’t set up the check-signing tasks with checks and balances in mind,” he says.
If your business includes a partner or staff members, will your business cheques require one signature or two?
If you require two signatures, will this be for all cheque amounts or only amounts over a specified dollar value? Make these decisions before opening your account, and you’ll avoid the headaches of making changes later.
- Choosing the wrong bank for your business
Seed’s research found that 63 per cent of small business owners choose the same bank they use for their personal account. While it might not seem like a bad idea, you might be limiting yourself to a bank that doesn’t meet your business’s needs.
“The problem is that consumer banks don’t offer all the features and services that small businesses need to succeed, such as cash flow visibility,” says Merritt.
“Failure to adequately anticipate cash flow can lead to loss of business. Look for a banking partner that offers services like cash flow insights and reports. This will save valuable accounting time and offer total visibility into your finances at all times.”
If you’re dealing with a microfinance bank, the first question to ask is if they offer a business current account, a feature that isn’t available through all MFBs, the CEO and founding partner of capital management firm LexION Capital, Elle Kaplan, says.
Additionally, 40 per cent of small business owners pay monthly maintenance fees to their banks, according to Seed’s survey.
However, there are free banking service options that many owners do not know about.
“Sometimes it’s as easy as calling the bank and asking them to remove the fee,” says Merritt.
- Ordering the wrong cheques
A surprisingly common error, says Rozbruch, is that many new small businesses print the wrong company name on cheques. For example, they may use a “doing business as” DBA name instead of the entity’s legal name. In some scenarios, using a DBA name on cheques poses a problem, especially if the business accepts credit card payments online. This is because of the increase in online banking fraud.
“Credit card merchant processors such as PowerPay require that the entity’s legal name match that on a void cheque to ensure they are one and the same, especially for startups,” Rozbruch says.
- Not maintaining the minimum monthly balance
Some business bank accounts offer monthly fee waivers if the account balance stays above a stated minimum every day of the month. Don’t pay unnecessary bank fees by letting your balance fall below the minimum. Better yet, set a goal to keep slightly more than the minimum required in your account.
“I recommend keeping the minimum amount plus a few amounts in your account,” Kaplan says. “That way, you won’t find yourself in the position of helping the bank earn money at the expense of your business.”
Avoiding common banking mistakes
Financial education is something that many of us only acquire through painful experience. Even though everyone needs this information, it simply isn’t taught the way that it should be. Because of this, many of us fall prey to costly banking mistakes.
According to www.mysuretybank.com, the following is a list of the most common of these mistakes.
Know your account
One banking mistake that a lot of people make is that of failing to calculate the true cost of maintaining an account. Banks sometimes offer interest rates that look attractive; the problem is that some of these accounts also come with steep fees attached. For an account with a modest balance, any gains made from interest payments could be swallowed up by maintenance fees. Taking the time to run the numbers when you open your account will help you avoid this common banking pitfall.
Check your bank statements
Another frequently made banking mistake is that of ignoring bank statements. Every communication from your bank should be reviewed and properly disposed of. Bank statements are usually the earliest indication of any possible problems with a bank account. These statements list fees, returned cheques if any, and a number of other important to know details about your account. Checking your statement should be a regular part of your financial routine. Furthermore, bank statements contain a lot of sensitive information. Leaving this information around carelessly can needlessly expose you to identity-theft. Make sure to properly dispose of all your old bank statements.
Wait to endorse
Quite a few people make the mistake of signing or endorsing cheques before they get to the bank. While in most cases this doesn’t present a problem, it can cause you to lose money in the event that your already signed cheque ends up in the wrong hands. Wait until you’re actually at the bank to sign your cheques and spare yourself the potential hassle.
Many people keep large amounts of money in accounts that pay little to no interest. This mistake can cost an account owner significant amounts of money over the years. A better strategy is to evaluate the amount you need to have in your account and deposit the rest into a banking product that provides a higher rate of return.
Shop around for a loan
Not shopping around when you need a bank loan can also be a big mistake. Never assume that simply because you have an established relationship with a bank, that they will give you the most favourable deal that you can find. Banks compete with each other for your business. There may be another bank that will give you a better deal on the loan that you need. Don’t be afraid to shop around before making your final decision.
Use your credit card
Another simple mistake that a lot of individuals make is that of making larger purchases with their bank debit card instead of using their credit card. Credit cards typically offer a greater level of protection from fraud and other problems than debit cards do. Make your purchases with your credit card and then pay the bill before interest payments set in.
Staying aware of these mistakes could potentially save you a great deal of money over your financial lifetime. While this list doesn’t cover every banking mistake, the mistakes that are listed are significantly important ones. Above all else, keep an eye on your money and the financial institutions to which you entrust it.