Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
Do you run a small business? If yes, you need to make many banking decisions, from determining the type of account to open to choosing among the best and most ethical small business banking companies.
This blog post will give you six tips for managing your small business banking properly.
1. Be aware of the different types of bank accounts.
Have you ever been curious about what a checking account and a savings account are and how they differ?
With so many different financial products, it's important to understand their differences before choosing which one is right for you.
You can use a checking account to pay bills or buy food, so this type of account will work well with what most people need from their bank. On the other hand, you can use a savings account to save for large purchases, emergencies, retirement, or other purposes.
As a small business owner, you must have both and use each of these accounts according to their purpose to avoid mixing your transactions. Accounting your business transactions will then flow smoothly.
2. Always check your balance before making any transactions.
You may think checking your balance before making any transactions isn't necessary. However, if something were to go wrong with a wire transfer or online payment, not knowing what funds are available could have serious consequences.
On the other hand, knowing how much money you have on hand means that you can prevent bounced checks and overdraft fees from happening. It is also helpful should an emergency arise. For example, suppose you urgently need more money for a major repair or a medical bill. In that case, you have enough liquidity without taking out a loan!
3. Track your cash flow through spreadsheets and/or accounting apps.
Keeping track of how much money is coming in and going out can be a pain, but it doesn't have to be! Instead, make things easier on yourself with simple spreadsheets or accounting apps that will tell you exactly where all your hard-earned cash has been going.
You can use a cash flow diary to keep track of your monthly budget and prevent overspending. Then, at the end of the month, you can use the data on your spreadsheet or accounting app to track down unnecessary expenses that you can cut off the next month.
4. Have multiple business bank accounts.
Business owners always have to liquidate at every end of the month or so. As much as you want all the money to be in one small business bank account, you have to divide this money for their respective purposes.
Depending on how many transaction types you make, you can open multiple bank accounts. Here are some recommendations from us.
Bank Account 1: Automatic payments for business expenses
Do you have a hard time remembering to pay your bills on time? Are you tired of wasting money because you always forget to cancel a subscription or service before the next payment is due?
If so, set up automatic payments.
As a business owner, you probably have a lot of bills to pay every month like rent, electricity, phone, and Internet. Or, if you own an ecommerce business, there are extra expenses like storage and shipping. Setting up automatic payments for these fees will make managing your finances easier and save you from late fees.
Bank Account 2: Crews’ paycheck
If you have employees or crews working for you, it is crucial to pay them on time. You can have a separate bank account for this so that it's easier for you to pay them every paycheck schedule.
Not only that, but you can also use this account to pay suppliers, business partners, investors, and others. The most important thing is that the only cash going out from this account is the money for your people.
Bank Account 3: Customers’ online payments
Customer service is very important. And one way to keep your customers happy is to offer them hassle-free transactions through online banking.
Make sure that the name on this account is your brand name. This way, there will be no confusion.
Also, you have to create a separate online payment portal for your customers to avoid problems with your other cash flow. Remember: you will have to post information about your customer account online, making it susceptible to fraud and theft. So make sure to choose a secured bank that allows you to set up a double-authentication proof before doing transactions.
Bank Account 4: Personal account
Always keep a personal bank account for you. Here, you can track all of your profits and earnings. It will also help you determine if you're ready to make a bigger investment or take business loans.
5. Know when it's time to ask for your bank statement.
If you're like most people, you might sometimes find it hard to keep track of what's going on with your money. That means that once in a while, you will need to ask for your bank statement from the past month or two.
It's important to see where all of your money is going and how things are adding up at the end of each month. The goal is to make sure everything is running smoothly financially.
Apart from using a spreadsheet or accounting app, a bank statement is a legal document that you can request at any point in time. So don't be shy! You won't look foolish asking for this document.
6. Pay taxes on time.
In today's economy, it is more important than ever to pay taxes on time. In the past, delinquent taxpayers could expect a slap on the wrist or a small penalty fee. Nowadays, however, tax regulations are stricter, and penalties for late payment are much higher.
Did you know that if you don't pay your taxes on time, the IRS will tack on a 5% penalty to whatever tax bill they send? As a business owner, you need to meet all of your tax obligations to keep your company from turning into a money pit due to federal fines and fees.
We hope this blog post has helped you understand how your banking decisions can affect your business and customer experience. It's important to plan accordingly and know what expenses are coming up, how much money is going out each month, where all that money is going, and how to budget for future purchases or emergencies.
Need help? Unloop’s bookkeeping service includes financial reporting and small business banking reconciliation. No matter the size of your business, our bookkeeping service will give you peace of mind.
Call us today to get started!