Banking and cash management

In starting your business, be sure to begin with establishing a bank account designated purely for business purposes. This will make it simple to keep business activity - deposits and payments - separate from personal activity. It will allow you to find business transactions more easily. It will allow you to pay yourself and know more readily that a certain payment is not for business use. In addition, it becomes a tool to help in building a business relationship with a bank and its staff as your business develops. Another thing to keep in mind comes from conversation with a former employer. This person told me that a bank will work diligently to attract you as a new customer but after that, you are often "forgotten". On the banks side, the sale has been made. You have been brought in as a customer. The employer mentioned this to his banker and it was confirmed by the banker. Consequently, be open to moving from one bank to another - only as necessary - to get the best service, interest on your deposits and investments and to get the best financing rates you can. Remember: the goal is to do all you can to keep your bottom line as big as possible.

Other things to consider is the variety of services available from your bank. Multiple accounts. Bill payments. Investments. And, if necessary, loans. (I'm extremely big on avoiding debt at any cost!) Having a separate account for payroll and payroll taxes will be a smart move, adding cash on a regular basis to cover necessary net payroll, federal taxes - income & FICA and unemployment, state income and unemployment taxes, and local taxes. These tax payments come due mostly on a quarterly basis until your liabilities are large enough to require payments to help keep your cash flow - and the government's cash flow - running smoothly. Having a separate account for payroll will also allow you to keep a clearer picture of what you will need to consistently keep your vendors paid. This will help you maintain good relationships with vendors and will also give you leverage in negotiating better pricing, purchasing arrangements, and payment terms. All of these will contribute to keeping your bottom line larger. As you can guess, this will make room for you to make a better product, do better marketing and advertising, provide better benefits and pay for your employees, and take more home for yourself.

Last is the subject of financing. This goes back to relationship with your bank and its staff. As your business grows, it may be necessary and maybe even advantageous to borrow money to make payments. If you have been managing your money well, your bank will know you have sufficient assets and a good credit history. Using this to your advantage will mean borrowing money at a lower interest rate, saving you a lot of money which can then be used toward a downpayment for a location of your own instead of a rental. Or, maybe you can buy a piece of machinery that will make your operation more productive. In any event, handling your money carefully will give you greater control and lots of advantages to be as profitable as you can.

Have a good week.