Bank on It – Why Having a Business Bank Account is Essential

There are many reasons why a new business owner may forgo opening a business bank account and struggle on using their own personal account for their business transactions. Sometimes they simply run out of time, having focused on everything else and forgotten to open a business bank account, they suddenly realise that it cannot be done instantly and so opt to carry on using their personal account. Other times it is through lack of conviction, fear of business failure leads them to bulk at putting the business finances into black and white. Most often, though, it is in the mistaken belief that it will save them a little money if they do not have to fork out for business banking fees.

Not paying to have a separate business account can often prove something of a false economy, as, for the small amount that most business accounts might cost, a business can gain so much more than just a bank account.

The way that customers and other businesses with which you do business view you is very valuable; image is everything in business and having your business transactions move through a personal rather than a business account smacks of small time; your business is far less likely to be taken seriously and plenty of customers will be put-off by the impression of paucity it creates.

Trying to do business accounts when using the same account for personal and business finances has the potential for absolute disaster; even allowing for not making any important fiscal errors, the sheer time consuming nature of fussing around separating everything out will be very trying for most new business owners.

Make no mistake, HMRC will be watching you; there will of course be times when you will have to have contact with them, provide them with information etc. and other times when they will just be watching. Mixing personal and business bank accounts may cause them to look a little harder at you and your business, as it makes financial transparency more difficult to demonstrate at a glance. If the Tax Man wants to see that you are declaring everything you should, having to fight through hundreds of domestic transactions to locate those of the business will not endear you to them.

Business accounts can provide your business with more than just banking facilities; many banks will throw-in added extras, such as accounting software, deals on insurance and even offer the actual banking services free for the first year or more of business. They are also a great source of financial advice for the new business owner.

So, rather than viewing a business bank account as an extra overhead on your new business, perhaps you could look at it in terms of what it can provide in benefits for your venture. If a business bank account can help your business profile or simplify its record keeping maybe it is worth the effort of setting it up, if it can also help the authorities to look favourably on you and throw-in a bit of guidance and some cheap insurance to boot, well then maybe it becomes an essential to add to your list.

Business Brokers

Business brokers help you in the sale and purchase of businesses. They charge fees for providing brokerage services. The fees depend on the size of the business, the final sale and the purchase price. There are different business brokers for dealing with different kind of businesses. For example, some of them might specialize in mergers, and others in acquisitions. Apart from the fixed fee, most of the brokers also charge commissions. The commission can be computed on the basis of the selling or purchase price of the business. The larger the price, the greater the leverage to negotiate commission rates with a business broker.

If you have sold your business or purchased a new one you might feel you don’t need the help of a business broker, especially if you know the prospective seller or buyer well. But if you are entering a new industry, buying or selling a big business, or do not know the buyer or seller you are dealing with, then a business broker can be of great help. Business brokers not only help in negotiating and taking one through the complete transaction, but they have a wide range of contacts. They could find you a better deal through these contacts.

Business brokers are good at making discreet inquiries in the market to find potential buyers or sellers, and a much higher price than what you are presently being offered. If you have a small business to sell, you might not be able to get in touch with a big company which you see as a potential buyer. But a business broker could do that. They are in touch with most of the big corporations. In fact, some of the business brokers specialize in dealing only in small businesses. The list of business brokers in your area could be available either online or at the local chamber of commerce.

Online Small Business Banking

In the digital age every bank has an online presence, from my little credit union to the big national players. However, not all banks are geared toward serving small business via the internet and, while they all offer you a lot of promises and maybe a flashy new toaster oven, not all of them offer you the services that you need at a competitive price. Here’s what to look for and how to spot those that offer online small business banking from the poseurs.

Customer Service and Big vs. Small Banks

One thing that you may read is how important it is to “cultivate relationships” with your banker and how important your banker is in expediting and even deciding whether or not you get a loan. While this may still be true in the smaller banks, in larger regional or national banks you will never, ever meets the person who approves your loan. A buddy of mine who was a big shot at a major bank before ditching it all to go into the Peace Corps said that the big banks create a strong separation from the banker that you meet, who is basically a sales person, and the person who decides, who is basically an accountant. So skip bribing your banker with chocolate truffles or bottles of bourbon. In fact, if you already bought the “gifts,” just send them here and I’ll gladly dispose of them for you for free!

Similarly, once the recommendation for business people was to keep all their banking with one bank, in order to build up a relationship of trust with that bank. Now, however, the idea of relationship is breaking down and, thanks to the internet and the relative ease of online banking, small businesses can cherry pick the best services off a smorgasbord of banks just like the Bigs do. In fact, the biggest reason that I can see of deliberately keeping all services with a single bank is not having to remember more than one sign-on, password, and pin!

What Your Bank Should Be Able to Do for You

Business Checking Account

One of the essential elements of running your own business is treating it as a separate entity distinct from your own personal affairs or the affairs of your other businesses or investments. Failing to treat your business as a separate entity opens up numerous potential legal and tax consequences that could end up being very costly or even financially disastrous to you. Opening up a business banking account is one essential act that helps establish your business as a separate entity. For most business the key to the checking account is functionality, forget interest rates and a few dollars difference in cost. The key questions are:

  • Can you use the web site to pay pre-pay bills, transfer money, accept online payments and whatever other essential services that your business might need?
  • Are you able to easily download information from the online site to QuickBooks Online or whatever other accounting software that you might be using?
  • Do they have the highest level of online security that is convenient for you?
  • Are they relatively light on “hidden fees” that $5 and $10 you to death just to be able to perform regular, essential operations of your business?

Security

Small businesses run by new entrepreneurs often have lower standards of security and this is especially true when it comes to banking and banking online. The smalls just don’t have the expertise nor the payrolls stuffed with I.T. professionals to keep up with the Trojans and frauds that cyber-criminals use to prey upon the unfortunate, and the unwary. You want the highest level of security possible but without making it so inconvenient on yourself that you aren’t fully able to take advantage of the online services. For example, while I was a Peace Corps Volunteer in Guatemala I often had to do my banking from internet cafes, and not always with my laptop that was impractical to lug around. When Chase, my original bank, changed the security so that I had to go through a complicated and time-consuming process every time I tried to access my account from a different computer I had to change banks (rather, I added a new bank) because that just wasn’t doable for me.

Loans and Lines of Credit

Loans are a prime area of shopping around and using the power of the internet to shave a fraction of a point off the interest rate. However, if you can’t pay the loan through an electronic transaction between the bank of your checking account and the bank that services the loan and make that payment for free then who cares about a little reduction of the interest rate. I like to look around for the best deal and then ask my primary bank if they can match it, just to keep my life as simple as possible.

Credit Cards

One of the easiest ways to make payments these days is by credit card and you will want at least one that is exclusively used for business purposes. There is no “best” credit card for small business and usually your bank will be able to provide you one. Keep in mind that you want one that is easy to set up and maintain electronically, that is widely accepted (especially if you travel for business), and has a high enough limit for what you need. Remember that building up credit for your business is just like building up credit personally, the better your history the higher your limit will be.

In Conclusion

Starting up a small business can be intimidating and the days when you could have a banker hold your hand and guide you through the process are long gone. The flip side of that is the incredible amount of information available to you at your fingertips. Another advantage is that you are no longer geographically limited, a world of banks is waiting to serve you! Just remember to keep in mind the services that you need, those that you don’t need, and those that you need but could be found at another bank for a better price. Happy banking!

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