money goes around

Many entrepreneurs do not do the proper homework before beginning a banking relationship. A lot of times the owner just opens up a business account at their personal bank without giving it any further thought. Getting a handle on both your banking and client relationships will help you successfully manage your business cash flow in times of need.

There are three main things you should be looking for in a bank:

  1. The banking solutions that your business will need today and in the medium term are available and at a reasonable cost
  2. Short-term credit is available for your company when you need it
  3. Excellent customer service catered to your business size

Ways to Decrease Financial Costs

Unlike consumer banking accounts, business banking accounts are part of the cost of doing business but this should not prevent you from trying to keep costs as low as possible given the three things you are looking for in a bank. Here are a few recommendations:

Concentrate Your Business Accounts at One Bank

Just like office supplies; you usually buy all of these products from one place, why would banking be any different. Bundle all of your accounts–savings, checking, payroll and so on–to get the best service and price package for your company. When other companies offer one-off solutions such as payroll processing, check to make sure that breaking off a service to another service provider makes sense on a company-wide scale. For example, does taking payroll processing out of your current banking bundle increase the costs of your banking package in terms of not only price but also of internal back office support in time and efficiency.

Understand Your Banking Bundle

Pick the right volume package for your business. For example, if your company processes a lot of wire transfers but few checks, then a banking bundle that gives you a high volume of “free” check transactions and few “free” wire transfer transactions is not the right package. Take the time to negotiate a package that fits the type and volume of transactions that are typical for your business. Then once this is in place make sure that you periodically check to make sure your typical transactions are still actually typical.

Ways to Increase Short-Term Money Flow

Your company will always have positive and negative changes in its cash flows. As your company gets bigger, your money needs are going to increase because you now have more of everything – – – employees, facilities, customers and so on. As a growing business, you will need to be able to get through the times when the cash coming in does not cover what needs to go out to keep the doors open and the employees paid. To be able to become a cash stable business you must at least do the following two things:

  1. Establish a line of business credit. Get one before you need it. This is one of the best cash stabilization tools you can have. You should only use it when you need it and when money is up you can then pay it down or off to free up the line for future needs as they arise. It also helps you build a positive credit history for your business.
  2. Establish excellent accounts receivable policies. Collect dollars owed on a timely basis. By letting money owed remain outstanding for long periods of time it will impact how you can pay your own bills and in turn your credit scores if you are unable to pay them on time. Also, have credit policies in place that protect your business by charging interest and late fee penalties for overdue accounts since late paying customers do cost you because the money not collected could have been put to use by you to make your business more money. Keep in mind that you have to pay your bills just like your customers have to pay theirs. If you did your part by providing a good service or product then they should do their part by paying the bill when due.

Follow these tips and your company will be well on its way to being cash stable no matter the economic climate.


William Lipovsky owns the personal finance website First Quarter Finance. His most embarrassing moment was telling a Microsoft executive, "I'll just Google it."

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