October 5, 2023
Finance management is one of the biggest and perhaps one of the most significant aspects of any business in the world of entrepreneurship. Financial management is the key to organising any successful venture, and small business banking is the core contributor in this area. Whether you’re a start-up business owner or a business owner who wants to get your business finances right, it is crucial to know the significance of small business banking and how to go around it.
You might be thinking, "Can't I just use my personal bank account for my business?" The short answer is no, and here's why:
Having a separate business account is one of the key reasons for creating clear documentation of all the accounts. A separate business and personal account helps provide clear information on the company’s financial situation, which is necessary for decision-making.
It is also very professional to have a business bank account in your company, so you should consider getting one. Your clients, investors, and partners will notice that you are serious about your business and that you have proper management and are well established.
If there are legal issues or an audit, having different business and personal accounts could shield you from any personal responsibility. It will also simplify the record keeping of the business expenditure in the event that one has to prove it in a court of law.
This way, you will also carry proper paperwork for your business and start building a business credit history necessary for contracting loans, credit lines, and other forms of credit. You need to know that your business and personal credit reporting are different and that you’ll need good business credit to get loans.
Financing or having a business bank account allows one to benefit from business services such as merchant services, credit card processing, payroll, etc. These services will enable you to ease your work in the financial aspect and provide benefits to your customers.
Different banks are not equally endowed to serve small businesses, and the above analysis clearly shows this. When choosing a bank for your business, consider the following factors:
Of course, having a good rapport with your bank is helpful since they will be your business’s source of financial wisdom as well as important services and funding.
Determine the fees effective for an account or a service with the other banks to know whether or not you are overcharged. Banks should, therefore, have the least transaction fees, reasonable interest rates, and low or no overdraft charges.
Identify aspects that few consumers understand but are most relevant to the operations of the business, including online banking, mobile banking, bill payment services, and remote deposit capture.
Ideally, your bank should provide a variety of loans and other credits with regard to the type of business you have. Banks focus more on the flexible loan terms and lightweight interest rates that accompany the loan and are offered adequate assistance in terms of the loan process.
When it comes to the administrative part of managing your business money, customer service is vital. Make sure banks provide a variety of support that consumers can access using the phone, email, and personal visitation, among other services, and non-limiting browsing customer feedback to have an insight into the overall performance of the banking firms.
Think about the places where you want your bank branches or where you see your offices’ ATMs. This can, however, be especially useful in scenarios where you have multiple business outlets or employees who have access to the business finances.
Banks provide all sorts of accounts due to the emergence of small business needs. Some of the most common include:
A business chequing account is a banking account that a business uses for depositing cash and cheques, withdrawing money, writing cheques, and making electronic transactions.
A business savings account is meant to accommodate funds that you may need in the future for your business needs or to reinvest. These accounts may reward higher interest than the chequing accounts and may come with a required minimum balance.
A business money market account is more flexible than a chequing account and earns interest on the money deposited in it, just as a savings account does. Some of these accounts may have a minimum opening balance of more than the normal savings accounts.
They are simply savings accounts in which you have to lock your cash for a while, usually from a few months to several years. In return for building your money in the account for the specified period, you will make a fixed rate of interest.
A merchant account allows you to accept credit and debit card payments for transactions from your customers. This means that you can accept many types of payments. It should, however, be noted that these accounts can either be ancillary to the business chequing account product or a standalone product.
In fact, the process of opening a small business bank account is not very complex, but it still requires a little more paperwork than the one used for the personal account. Here's what to expect:
Choose the right bank and its account type that is suitable for your business. Some of the things to know include fees, the account, and the level of customer service that a particular bank offers.
When applying for a business account, usually you must produce the license of your business, Articles of Incorporation or Organisation, and an identification card duly endorsed by the government. You may also have to submit your business physical address and a description of your business and activities.
Download and complete the application form that is usually issued by the bank where you intend to open the business account and include pertinent business and other officials permitted to sign for the account.
Most banks demand that one deposit some amount of money in order to open a new account. In some cases, this deposit can be rather different depending on the bank and the type of account chosen; therefore, one should consult the bank they use.
Once you open an account, enroll for online banking that will allow you to transact on the account from the comfort of your home and make payments, among other banking activities. Most also provide a mobile banking application to assist you with having easier times making transactions via your account.
When your account is active, it is always important for managers to ensure that the accounts are in good shape. Here are some best practices to follow:
Daily reconciliation of the accounts will assist you in discovering errors that have occurred and any disparities that prevailed to keep your account book in order.
Monitor your cash position very closely so that you have adequate cash to meet your needs and fund your business.
Although every business is different and has different needs, some general rules to follow include making sure to open a business account, not using your personal money to pay for business expenses and vice versa, and making sure to keep all the records of the money used to pay for goods and services for the business clear.
The fact is that World principles on bill and payment systems suggest that automation is one of the most efficient ways to manage your regular bills and payments, thus avoiding missed or late payments.
It is always wise to put some of your earnings aside to cater to your business taxes, but it is also important to record all your expenses to make good ground during your tax returns.
An emergency fund will be beneficial in an unpredictable situation because it ensures the business stays operational regardless of the circumstances.
Again, chequing your bank statements frequently is a perfect way because you will be able to identify any mistake that has been made, any fraudulent activities, or even situations where you could be charged more than necessary.
Accounting software helps you manage your financial aspects, prepare reports, and even work with your budget more efficiently.
Banks serve an important role in the overall success of your business venture, and as such, good small-business banking cannot be overemphasised. By approaching small business banking accordingly, making the right decision regarding the choice of a bank, and handling your account you lay the groundwork for a successful company.
