Many people feel a calling to entrepreneurship. After homeownership, some see starting a business as the next logical step in the American Dream. If you’re a small business owner or hope to be one day, you’ve probably considered what it takes to succeed. You need a compelling product or service that customers want. You have to figure out how to advertise and market your company effectively. And you have to manage day-to-day business operations.
All these issues are important, but there’s something even more essential you might not have considered: small business banking. The right bank serves as a critical partner, helping finance your small business and guiding you to long-term success.
Like any partnership, you must play your part. Here are five tips to help you manage your small business finances effectively.
Choosing the Right Business Checking Account
One of the first mistakes many new small business owners make is using their existing personal bank account for their company.
While this may seem like a time-saver, since using a pre-existing bank account means your business can receive money and pay bills right away, it’s a risky approach. It’s all too easy to lose track of what’s personal and what’s business. And, in case of judgments against your company, your private income could become subject to collections.
So, you should open a business checking account and keep things separate from the start. Instantly, your accounting will become easier, and you can monitor your company’s cash balance in real time. But before opening an account, take some time to shop around and select a business checking account suited to your operations.
Most banks offer no-cost business checking accounts, but you may have to maintain a minimum balance. If you fall below that minimum, your company might be subject to per-check fees. Choose an account with no balance requirements and a fee structure that aligns with your expected cash flow and transaction activity.
Modern banking conveniences such as bill pay, mobile deposits, and online account transfers can save you time and hassle. Look for accounts with these perks, along with free business debit cards. If your business accepts credit cards, ensure your business banking account integrates with the major payment networks.
Maintaining Records for Tax Purposes
Another good reason to separate personal and business banking is your company’s tax liability. Having a dedicated business checking account and keeping accurate records for tax purposes is essential.
The best way to maintain clean, organized business records today is to use accounting software. Many options are available, including cloud-based apps you can set up immediately. At a basic level, every accounting app allows you to categorize income and expenses. This level of organization helps you prepare clean, verifiable tax returns.
No matter which software package you choose — or even if you choose manual bookkeeping — be sure to save invoices and receipts. Since these records verify your expenses, they’re essential in a tax audit. In addition, regularly compare your business bank statements to your records to identify and sort out discrepancies before they become a potential tax problem.
Applying for Lines of Credit or Small Business Loans
As your small business grows, you might need a boost in capital. Additional funds could be for adding inventory, business expansion, or unexpected expenses. Here’s when business banking comes to the rescue through lines of credit or small business loans.
Lines of credit are much like credit cards in that you can borrow up to a set limit and repay monthly. Your banking partner can set up this type of revolving credit so that it’s available when you need it. However, you might prefer a more traditional small business loan should the need arise.
The lending departments at many banks offer small business loans on a direct basis. Your bank can also help you with loans through the Small Business Administration (SBA). If your business qualifies, the SBA provides a range of loan programs with lower interest rates and favorable terms. Although the SBA is a government agency, you apply through your bank, which will then service the loan.
Automating Invoicing and Payroll Processes
When starting a small business, you typically have only a few employees. One person or a small group often handles administrative functions like HR and accounting. Fortunately, today’s technology can automate most of your financial workflows.
For instance, financial software can automate the accounts payable process by scanning invoices and importing the payment details into your accounting app. The time saved helps ensure timely payments while automatically collecting important invoice data, such as the vendor, invoice date, and due date.
Payroll software or outsourced services can also save your team significant time. Automating payroll tax calculations and deductions reduces the risk of costly errors. Payroll apps and services can also generate paychecks or facilitate direct deposits for your team, decreasing the amount of time-consuming, manual work.
Consulting With a Business Accountant or Financial Advisor
A qualified business accountant or financial advisor can become a valuable asset on your financial journey. Seeking professional guidance can provide the following benefits:
- Tax preparation and planning: Your bank can help ensure you’re complying with tax regulations, identify opportunities for tax deductions, and minimize tax liabilities.
- Financial analysis and projections: Experts at your bank can offer insights into your business’s financial health and guide future decisions.
- Strategic financial planning: Collaborate with an advisor to develop financial strategies aligned with your business goals, such as retirement savings or expansion plans.
Business Banking: Building a Strong Financial Future
Effectively managing your business finances transcends mere record-keeping and number-crunching. It empowers you to make informed decisions about your business’s trajectory. Using the tools and tips above, you can steer your small business to long-term success. But remember, financial planning is an ongoing process.
Review your strategies regularly, adapt as needed, and watch out for any bumps in the road. If your business runs into hard times, your bank can help you through it. That’s why choosing the right small business banking partner from the start is so important. The relationship you form can help build a solid financial future for you and your company.