5 Small Business Banking Mistakes to Avoid
- Hosted October 16, 2020
- By Admin
It can be easy to steer clear of or fall into small business banking mistakes. Mostly, it takes reading, understanding, and practice to master the basics of managing a business bank account. In turn, you can sharpen your business and financial acumen to better manage cash flow, accounting, invoicing, and more.
When you’re taking the risk to do the extraordinary and pursue your passion as an entrepreneur, you owe it to yourself to be savvy with how you run your company. If you avoid these common pitfalls, you could get several steps closer to a financially sound business that builds staying power.
Mistake #1: Using a Personal Account for Business
Entrepreneurship is an exciting endeavor. When you’re first starting your business, it might be tempting to hit the ground running before getting everything in order. But discipline can be necessary as a business owner, too. Sometimes, you have to slow down and do what’s necessary, which might not always be what’s fun.
Setting up a business bank account may not be the most exhilarating task in a startup founder’s journey. However, it is a best practice in order to avoid commingling personal and business funds. There are many reasons to avoid commingling, including keeping proper record keeping, building up your business checking for positive cash flow, and more. And besides, having that separate bank account can be enlivening in its own way; it’s kind of like a badge of honor for taking your business seriously.
Mistake #2: Fumbling at Account Opening
Opening a business bank account should be a relatively easy item to check off your list. The part where some new businesses struggle is before the application process, which is when you should research what items you’ll need to provide to the bank. Requirements vary, but in general, you can expect the bank to ask for your business formation documents as well as personal verification, such as your ID, Social Security card, or proof of address.
If you are operating as a sole proprietor, you may consider selecting a “DBA” or “doing business as” name. Note that your state may or may not require a DBA to be registered. If you have established an LLC, learn how to open a bank account for your LLC online.
Mistake #3: Letting Expenses Go Untracked
Understanding business expenses starts with recognizing the extent to which they can impact your business finances.
First, any business expense is money going out. Cash flow is one of the most pivotal aspects of business ownership. According to a U.S. Bank study, 82% of businesses that failed cited cash flow problems as a factor in their failure. If you have more money going out in expenses than you have coming in through accounts payable, you could run into trouble. If you are tracking expenses, then you could more easily identify which expenses you could potentially cut.
Second, some business expenses are tax deductible, meaning they can be subtracted from your gross revenue to reduce the amount of tax you owe. These expenses can, to an extent, include rent, utilities, equipment, office supplies, advertising and marketing, wages and salaries, employee benefits, professional education, training, payroll fees, business insurance, business fees (licenses, permits, etc.), travel, business vehicles, legal fees, loan payments, interest payments, professional services and others, depending on your business. Consult a professional for more information on which of your expenses are tax deductible.
And third, business expenses come in many different forms. There are direct costs, indirect costs, recurring costs, non-recurring costs, deductible and non-deductible expenses, and interest. You can read more here. In any event, keeping track of your business expenses on a set schedule could be useful.
Mistake #4: Not Tapping into Technology
The primary function of a business bank account is to hold your business funds, but digital capabilities have brought so much more to business banking, especially for those entrepreneurs who are naturally inclined to use productivity tools, apps, and integrations.
Some business bank accounts connect to software solutions, including bookkeeping services. With a bank that taps into technology, you can bank on the go and integrate with some of the most popular business solutions today. Online banking is especially useful in the age of the coronavirus when branch offices may be closed or have limited operating hours.
Mistake #5: Settling for Business Banking Fees
Sometimes, business bank accounts come with fees. A bank may require a business customer to pay fees for monthly maintenance, transactions, cash handling, ATM withdrawals, deposits, and other daily banking activities. In fact, a 2020 study by WalletHub found that business checking accounts are 70% more expensive than branch-based personal checking accounts and 47% more expensive than online-only personal checking accounts.
But not all business bank accounts come with fees, so if you look around, you may find one that is low- to no-fee and works for your business.
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