Step 7: Choose Your Bank Wisely

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Ah, yes, now for that heady moment as an entrepreneur, the one many people treat with little priority, but one that we stress as ultra critical to your future - choosing and managing a relationship with a financial institution.

One of the most important relationships you can have as a small business owner is the one you build with your bank. Choosing the optimal bank can save you from unnecessary fees, mismatched needs and services, and other financial headaches.

There are plenty of banks out there, local, regional and national in scope, which will compete for your business. Below is a hit list of factors to consider when making your selection of the ideal banking provider.

Fees

Everyone tries to avoid banking fees with their personal accounts, and you should do the same with your business checking account.

To get to the bottom line about fees for a business account, dive right into the fine print. That’s where you’ll find all the gritty details about what happens to you, your account and why.

Complicating matters is the fact that every bank takes a different approach, so it’s difficult to establish an apples to apples comparison. But press on! Look for those fees that might be assessed for insufficient funds, or those monthly service fees, or costs for simply opening the account.

Learn the rates of several banks and that way you can shop around and find out the arrangement that works best for your venture. A good thermometer of what you can expect from a bank is your first book of checks, which should be free of charge. If not, sound the alarms.

Tip

Use the threat of competition to get lower fees.

No-fee checking accounts and overdraft protection can help you in the long run. But it’s no secret that banks are fee-happy. They thrive on the revenue they make by charging you miscellaneous fees.

To counteract the “fee burden,” shop around before choosing a bank and find one that charges the least. And if you already have a bank but aren’t seeing a good offering from them, then take your business down the street, or at least threaten to. Loyalty has its limits and laziness has no role when it comes to keeping the operating costs of your business to a minimum. In the final analysis, these pennies add up and can mean the difference between having a profit margin or none at all.

Interest-Bearing Accounts

For a small business, having liquidity in your accounts is important. You may need regular access to funds, depending on the status of your cash-flow forecast. But at the same time, you want to gain as much interest as possible on the money sitting in your accounts. There are a few options at your disposal:

Interest-bearing checking accounts

These accounts offer you the highest liquidity, though they are at the lowest interest yield, usually less than one percent. Depending on your bank, they may also require that you hold a minimum monthly balance.

Interest-bearing savings accounts

Often attached to checking, and also called money market deposit accounts, they offer higher yields which can fall in the four-percent range. However, you might have to move funds from these into your operating checking accounts to pay off debts.

Sweep accounts

This is the combination of two accounts, where one serves as your operational funds and the other accrues interest. To get started, you would set up a checking account or similar fund. Money deposited after a certain point is then deposited into your separate account that earns higher interest. These do normally always require a minimum balance, though, and oftentimes there are associated fees.

Short-term CDs and other investments

These options will provide you with the highest interest rate but the least liquidity. You put funds into a CD or other vehicle for a set period of time, from weeks to years, without access. This option is good for a business owner who isn’t as strapped for available cash.