Having a trusted relationship with a bank is supposed to help individuals and businesses save money and make better financial decisions, but if you have a business bank account, you may have noticed the opposite effect. That’s because many banks impose extensive fees just to use their services. In order to keep your business finances on track, then, you’ll have to learn to navigate these fees and expenses so that banking services don’t become a loss leader.
The Basics: Know Your Balance
The most common reason that business accounts are hit with added banking fees is because your account balance falls below the required minimum. This happens on personal accounts as well, but business accounts often have higher required minimums, often as much as several thousand dollars. For new businesses trying to get off the ground, this can be an onerous requirement and one that will require owners to carefully monitor their spending, possibly to the point of hindering growth.
Another common way that banks penalize small businesses is through excessive overdraft fees. Unlike account minimums, overdraft fees are well understood; they’re a fine for situations in which the bank covers the difference between how much money you have and how much you’ve withdrawn or spent.
Just because the fee makes sense, though, doesn’t mean it’s always reasonable. In fact, according to business finance experts at Revenued, overdraft fees on various business accounts range from $9 with free overdraft protection from Capital One to $38.50 at M&T Bank with an added $12.50 charge for overdraft protection. That’s a 420% difference on the overdraft fees alone. With fees like that, it’s imperative that small businesses watch their spending because any time there’s an overdraft fee, they’ll also be under their required account minimum – and that means double fines.
Get The Right Tools
Banking fees may be egregious, but luckily in today’s financial ecosystem, you don’t need to keep track of all these added expenses on your own. Instead, you can spend far less money to get overdraft warnings and coverage that will protect your money.
One of the most popular apps for managing overdraft fees is Dave, a simple app that costs just $1 a month. For that dollar, Dave will send users warnings before they make purchases that could send them into overdraft, but for a little extra, it will also extend users a small loan to prevent them from getting hit by big bank fines. These cash advances run up to about $75 and cost just $3.50 a transaction so that Dave can interact with your bank. If you’ve got accounts with a bank that charges $20 or $30 for overdrafts, the app is definitely a worthwhile investment.
Mind Your Cash Flow
All of these approaches to avoiding banking fees come down to gaining greater control over cash flow, but if you’re running a new business, that can be challenging. In some cases, your best option may be to enter into a debt management program that can reduce how much you owe creditors and condense those payments into a single monthly payment. When you’re making fewer withdrawals, you’re less likely to encounter overdraft fees, and you’re more likely to maintain your minimum monthly balance.
Another way to improve your cash flow as a small business is by requiring deposits from customers if you run a service-based business or by negotiating better supplier terms on the purchasing end. Making these small changes can help keep your accounts balanced and prevent outlays from outpacing income.
Business banking accounts are often designed around large corporations doing hundreds of thousands or millions of dollars in business every year, rather than those just starting out, and that can create unfair expectations. Though you may not be able to restructure the banks, you can restructure your own approach to money management to make banking work to your advantage.