Six mistakes to avoid when opening a professional account
If you own a small business, you need to open a business bank account to organize your finances.
While this may seem like a simple task, it does require good decision-making and careful thought.
According to www.businessnewsdaily.com, small business experts share some of the common mistakes startups make with their business accounts and how you can avoid doing the same when opening your own.
- Incorrect or missing information during account setup
New small business owners and entrepreneurs often make the mistake of bringing the wrong documents to the account opening appointment. Each bank may have different requirements; So, when making an appointment, ask the bank agent exactly what you will need to bring to the meeting.
âDon’t worry about putting together a lot of business documents,â says David Bakke, small business specialist for the Money Crashers personal finance website.
âIn most cases, all you need is your tax document and other general information,â he adds.
- Do not have a designated business account
According to a study conducted by Researchscape on behalf of Seed, 32% of business owners do not separate their personal and work bank accounts.
âThis can lead to serious accounting, tax and reporting issues for business owners,â says Brian Merritt, president and CEO and co-founder of Seed.
âSave yourself headaches down the line and separate your business and personal accounts from the start. You will reduce your legal liability and your life will be much easier at tax time, âhe adds.
- Not planning check signing powers
Rozbruch notes that small business owners often forget to plan for signing business checks.
âThey don’t set up check signing tasks with checks and balances in mind,â he says.
If your business includes a partner or staff, will your business checks require one or two signatures?
If you need two signatures, will these be all check amounts or only amounts greater than a specified dollar value? Make these decisions before you open your account, and you’ll avoid the headache of making changes later.
- Choosing the wrong bank for your business
Seed research found that 63 percent of small business owners choose the same bank they use for their personal account. While this doesn’t seem like a bad idea, you may be limiting yourself to a bank that doesn’t meet your business needs.
âThe problem is, mainstream banks don’t offer all of the features and services that small businesses need to be successful, such as cash flow visibility,â says Merritt.
âFailure to adequately anticipate cash flow can result in a loss of business. Look for a banking partner that offers services such as cash flow information and reports. This will save you valuable accounting time and provide full visibility into your finances at all times.
If you are doing business with a microfinance bank, the first question to ask yourself is whether they offer a corporate checking account, a feature that is not available in all MFBs, the CEO and founding partner of the company. Capital Management LexION Capital, Elle Kaplan, says.
Additionally, 40 percent of small business owners pay monthly maintenance fees to their banks, according to Seed’s survey.
However, there are free banking options that many homeowners are unaware of.
âSometimes it’s as easy as calling the bank and asking them to waive the charge,â says Merritt.
- Order the wrong checks
A surprisingly common mistake, says Rozbruch, is that many new small businesses print the wrong company name on checks. For example, they can use a “doing business as” DBA name instead of the legal entity name. In some scenarios, using a DBA name on checks is a problem, especially if the business accepts credit card payments online. This is due to the increase in online banking fraud.
âCredit card processors like PowerPay require the legal name of the entity to match that of a void check to ensure they are the same, especially for startups,â says Rozbruch.
- Not maintaining the minimum monthly balance
Some business bank accounts offer monthly fee waivers if the account balance remains above a stated minimum on any day of the month. Don’t pay unnecessary bank charges by letting your balance fall below the minimum. Better yet, set a goal of keeping a little more than the minimum required in your account.
âI recommend keeping the minimum amount plus a few amounts in your account,â says Kaplan. âThat way, you won’t find yourself able to help the bank make money at the expense of your business. ”
Avoid common banking errors
Financial education is something that many of us only acquire through painful experience. Even though everyone needs this information, it just isn’t taught the way it should be. Because of this, many of us fall prey to costly banking mistakes.
According to www.mysuretybank.com, here is a list of the most common mistakes.
Know your account
A banking mistake that many people make is failing to calculate the true cost of maintaining an account. Banks sometimes offer interest rates that seem attractive; the problem is that some of these accounts also come with high fees. For an account with a modest balance, any gains made on interest payments could be swallowed up by account maintenance fees. Taking the time to run the numbers when opening your account will help you avoid this common banking pitfall.
Check your bank statements
Another common banking mistake is ignoring bank statements. Every communication from your bank should be reviewed and properly disposed of. Bank statements are usually the first indication of any potential problem with a bank account. These statements list charges, returned checks, if any, and a number of other important details to know about your account. Checking your statement should be part of your financial routine. In addition, bank statements contain a lot of sensitive information. Leaving this information careless can expose you to unnecessary identity theft. Make sure you dispose of all your old bank statements correctly.
Wait to approve
Many people make the mistake of signing or endorsing checks before they get to the bank. While in most cases this isn’t a problem, it can cost you money if your already signed check ends up in the wrong hands. Wait until you are at the bank to sign your checks and save yourself the potential hassle.
Many people keep large sums of money in accounts that earn little or no interest. This mistake can cost an account holder significant amounts of money over the years. A better strategy is to assess how much you need to have in your account and deposit the rest into a banking product that offers a higher rate of return.
Shop for a loan
Not shopping around when you need a bank loan can also be a big mistake. Never assume that just because you have an established relationship with a bank that the bank will give you the best deal you can find. Banks are competing for your business. There might be another bank that will give you a better deal on the loan you need. Don’t be afraid to shop around before making your final decision.
Use your credit card
Another simple mistake that many people make is making larger purchases with their bank debit card instead of using their credit card. Credit cards generally offer a higher level of protection against fraud and other issues than debit cards. Shop with your credit card, then pay the bill before interest is paid.
Staying aware of these mistakes could potentially save you a lot of money over the course of your financial life. While this list does not cover all banking errors, the errors listed are very important. Above all, keep an eye on your money and the financial institutions you entrust it with.