Question: How do I choose the right banking strategy for my small business?
Answer:
How many bank accounts do you have set up? The first rule is never mix personal and business funds. So at minimum, you should have one account for your personal finances and one to handle your business. There are no exceptions to this rule. Accurate tracking becomes difficult when personal transactions are mixed with business, leading to potential tax and money management problems.
Choosing a bank to handle your business account takes a bit more thought than opening a personal account. You should talk to at least two banks before making a decision. Bank charges and services offered vary quite a bit from one institution to the next.
When comparing banks, you should see if they have a small-business team that is focused on the needs of a business like yours, what services they offer and how much they charge, and how the fees are calculated. The nature of your business will determine which services you will require and the most economical type of fee calculation. You should also think about what kind of loans you may need in the future. Find a business bank that will work with you and is committed to helping your business grow.
A good bank will help you assess your requirements. You may find that you need more than one bank account. Your primary account is set up to handle the day-to-day transactions, payments and receipts. You may also need special accounts, possibly one for payroll, to hold funds earmarked for a specific expense. Other examples of accounts that many businesses open: demand deposit accounts (to set aside cash that you don’t need for the day-to-day operations, but that you can easily access when needed); term deposit accounts (for funds that you will not need in the immediate future or on short notice , they typically pay higher interest); foreign currency accounts (if you will be trading overseas); loan accounts; and mortgage accounts.
Having the right accounts in place with the right financial institution sets the foundation for effective and efficient cash management practices. Be sure to review your bank accounts annually to be sure they are meeting your most current needs.
Written by Leah Thiss, founder, president and chief executive officer of BBBS Inc., an outsource accounting and bookkeeping services company with offices in San Diego. She can be reached at (858) 673-1099 or leaht@bbbsinc.com or by visiting www.bbbsinc.com.
