Open a business account

A recent survey from Citizens Bank found that one-quarter of small-business owners are using their personal bank accounts for their companies, instead of opening a separate account dedicated to the business.

This practice creates risk – not just for the business, but for the personal finances of the owner.

Using a personal account for business finances is an easy mistake to make when starting out, but it can quickly become a liability. For example, paying personal expenses using business money or vice versa makes it far more difficult for small-business owners to get their accounting right at tax time.

Business owners also need a business account so they can build a financial history that they can later use to apply for credit.

- Advertisement -

Finally, not having a separate account can make it too easy for companies to spend personal funds that may be needed for household expenses.

Managing cash flow is one of the most important, yet under-appreciated, challenges faced by small businesses today. Business owners who take a proactive and strategic approach to managing cash are able to avoid problems and create new growth opportunities through reinvestment and making their capital work better for them.

Having a strategic approach to managing cash flow is important, and the following seven tips can be helpful:

n Understand your operating cycle. Regardless of size, every business must deposit, monitor and manage cash, make payments, fund purchases, invest in their company and receive payments. Reviewing and understanding each step in this cash-flow cycle can boost efficiency.

n Encourage faster payments. Can you provide an incentive or discount to customers or vendors to encourage them to pay faster? The sooner a payment is received, the sooner you can put that revenue to work for your company. Collections services such as lockbox also can help post payments to your accounts more quickly.

n Consider remote deposits. Some banks offer customers the opportunity to make remote check deposits from their mobile device, sparing them trips to the branch.

n Review your payroll process. If you pay your employees twice a month instead of every other week, you will be managing 24 payroll periods instead of 26 during the course of a year, making your company more efficient. Direct deposit of employees’ checks can also create efficiencies.

n Evaluate real-time wires. If your small business is buying or selling overseas, real-time wires may be an option in lieu of visiting a bank branch.

n Manage outgoing payments in an advantageous manner. Banks can help establish relationships with credit card companies that can expedite payments from customers, while giving additional timing or flexibility for repayment to settle your account.

n Have a Plan B. If you assume you can borrow funds to cover a cash shortfall, be sure to have a loan or line of credit set up beforehand. Waiting until the shortfall occurs leaves you in a ditch, as most financial institutions will hesitate to lend money if you’re in financial straits.

It’s vital for business owners to take the time to understand their finances and their cash-management process in order to make improvements that ultimately help their bottom line. •

Lou Amoriggi is a Citizens Bank regional director for southern New England and New York.

No posts to display