It’s easy to get distracted by concerted efforts to make money for your startup, but as a new entrepreneur, you should also pay attention to where you store that money. Though you might be tempted to hoard your funds in a box under your desk, it is much safer – not to mention more practical – to put it into checking and savings accounts at a financial institution, like a bank or credit union. There is just one problem: Which bank or credit union do you entrust with this responsibility?
There are several misleading information surrounding the right ways to do banking for small business, so it is important to sort good advice from bad. The following myths are just that – myths – and you shouldn’t let them influence your decisions regarding startup banking.
It’s okay to mingle personal and business accounts
Even if you have a startup partner – and really, a partnership is rarely a good idea – for at least the first year or two of your startup’s life, you’ll be working by yourself. Most startup entrepreneurs form their businesses in their living rooms and build their business’s foundations in the garage or basement. Because of this, the line between your life and your work can get blurry – and so too can the line between your personal and business finances.
However, even in the beginning years, you shouldn’t mix your money. Mingling your finances makes basic accounting tasks essentially impossible, so it prevents you from establishing a balance in your cashflow or understanding what money your startup has available. From the get-go, you should set up separate accounts for your business, so you can know for certain what money is yours and what belongs to your startup.
Free checking is always free
Banks love to bring in new clients with advertisements of free checking. Considering that checking accounts usually come with monthly fees – and considering that business account fees tend to be higher because they handle much larger sums – plenty of entrepreneurs are tricked into joining these institutions seeking serious savings.
Unfortunately, free checking almost never stays that way. Usually, free checking accounts carry more restrictions than typical accounts; for example, you might need to maintain a high minimum balance, or you might have a cap on the number of transactions you can perform per period. Instead of hopping on the first so-called deal you find, you should diligently research checking interest rates and terms to ensure you find the best option for your startup.
Your current bank is the best possible bank
You love the bank you use for your personal finances. Their systems function smoothly and effectively, their tellers know you by name, and their services are perfect for your financial needs. There are all good signs of a good bank, and you might be tempted into blindly using them for your business accounts.
While these are good indications that you should consider your bank as a contender for your business accounts, you shouldn’t assume that a bank excellent at personal financial services is also expert at business services. Your startup has vastly different financial needs than you do, so you should still research your bank’s options and compare them to other financial institutions’ services to find the perfect fit for your business.
Online banks aren’t worth your time
Though startups rely heavily on tech – to execute marketing strategies, to manage accounting, to perform HR responsibilities and more – many entrepreneurs remain hesitant to trust online banks. Indeed, you should be dubious of most services available online considering the high rates of phishing attacks targeting small businesses.
Still, not all online banks are illegitimate. In fact, many offer superior services and rates than the major institutions you might inherently trust. While you do your research, you should look into a few online banks and contact them to learn about their options. Many are more flexible in their offerings and willing and able to work around your needs.
You should go with your gut
Intuition isn’t fake; there are plenty of times when you can trust your gut feelings. However, those are usually in a split-second, fight-or-flight scenarios, not data-dependent business decisions. It isn’t a good idea to rely on a hunch when choosing your business’s bank. Instead, you should measure fitness of financial institutions using established metrics, like the five Cs, or your own system. It will take time to find the right bank, but when you do, you’ll be happy with your diligence for years to come.