Business Banking Tips for
Small Businesses

Business banking can be confusing for anybody. So let's start from the beginning.

You have decided to start your own business. It might be a home-based business, or it might be something a bit bigger. Either way, you need to prepare from the beginning for what to do with all that money!

You may not have much money to begin with. In fact, you may not bring in anything for several months, depending on the business you choose, but you still must pay close attention to money matters. Small business owners frequently end up in financial trouble because they neglected this issue at the beginning.

Why? Because you are most interested in the content of your business (consulting, selling widgets, speaking, etc.) rather than the business of business - probably because you know more about the content than the business side of things.

Even so, don't make that mistake. As a business owner, you simple must keep your eye on money matters.

Here are some business banking and money management tips, just for new small business owners:

1. Open a separate checking account for your business. This is very important. Do not mix your personal and business funds! This is one of the mistakes made by many small business owners that they soon regret. You need to keep your funds separate to help you accurately track what you are spending and earning from your business. Also, if you co-mingle your personal and business funds, you could have major problems at tax time. Don't do it. Even if you have little money in the account at the beginning, keep your business money separate.

2. Shop around for the best business accounts, No, all business banking accounts are not the same. Fees charged on business checking accounts can vary dramatically from bank to bank (from $0 to hundreds of dollars). Do a little shopping to find the best deal for you.

Read more tips for choosing a bank for your small business.

3. Remember that the best deal may not be the cheapest. When you are in business for yourself, and especially if you don't have a staff to help you, the least expensive choice may not always be the best. Sometimes the added convenience of some extra banking features (online business banking, a small local bank with easy line-of-credit application processes, and/or one bank that can handle all of your person and business banking needs) is worth paying a little more. So shop for price, convenience, and features.

4. Look for interest bearing accounts. Why would you park your money in an account that earns no interest when you can make your money work for you? You can choose an interest bearing checking account, or you can combine an interest bearing money market account (the place where you park money for longer periods of time) with your regular checking account and transfer money between the two, as needed. Just be sure you pay close attention to limits on transfers and account balance minimums, if they apply to the accounts you choose.

5. Have your checks printed with both your name and your business name. Especially early on, people will know you by your name. However, having your business name on the checks lends some credibility. By the way, you can authorize a signer on the account whose name does not appear on the checks. For example, in my business, my husband is authorized to sign, but his name is not on the checks. So, if I'm out of town and he needs to sign pay checks or any other check, he can.

6. Don't spend too much money on checks. You will be tempted to buy the big business checks with the fancy tear-off stubs, and the bank account rep will be pushing those, too. Why? Because they are much more expensive than simple small checks that look like the ones you have for your personal account. Unless you are trying to give the impression that you are much bigger than you are, why waste the money?

7. Work toward maintaining a reserve fund. You can keep this in the same account or in a separate one, but you will need a reserve fund to keep you functioning during those periods of time when cash flow grinds to a halt. It is very difficult for small business owners to do this because there is always something you need to spend your cash on, but you will be glad you did it. Your mom was right - it is good to 'save for a rainy day.'

8. Pay your taxes and estimated taxes on time. This seems like an obvious thing to say, but you would not believe how many small business owners get in trouble over taxes. They really need that cash right now for whatever and they really, really plan on catching up their tax deposits next month, which becomes next quarter, which becomes...oops! Now you're in trouble with the IRS. Be wary of this trap from the beginning. As a small business owner, no employer is withholding taxes from your paycheck. You are responsible for keeping up to date on your taxes.

9. Take advantage of your bank's line of credit (LOC) if necessary - but be careful! A line of credit can be a lifesaver for a small business owner, but it can also be a trap. If you borrow against your LOC, be sure you do not borrow over your ability to repay it within a very short period of time. Even if your LOC limit is higher, you know what you can afford, and what your cash projections look like for the next quarter. If you don't know that you can pay it back within a month or a quarter, don't borrow it. There is a certain amount of risk in running a small business and you may never have absolute certainly about future cash flow, but don't turn into a gambler with your credit. You will need it (and a decent credit rating) later.

10. Develop a relationship with your banker. Not only is success in business largely about relationships, but this is one that will pay off for you. Tell your banker the truth. Ask for help when you need it. Call him before you are in trouble with your account or your LOC. If you can't speak openly with your banker, get another one.

11. Reinvest in your business. You may be so excited about your early income that you want to take it out of the business account and 'pay yourself' immediately. Don't be so hasty. You need to be sure to re-invest enough in your business to keep it going. Some experts recommend that you reinvest at least 60% of your gross income into your business. Decide on how much you will re-invest and try to stick to it.

Business banking is not difficult, but it does require your attention. Schedule some time each week to make sure your financial house is in order.

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