Understanding Banking For Small BusinessThe truth is that not all businesses begin with a clever business plan or emerge from a brainstorming session in a rented hotel function room. Most businesses begin as a result of seeing a need or an opportunity and seizing those openings immediately. If one sees business as a risk, then such an approach is not unusual. However, the risk only begins to become a concern when such informality extends to a small business's banking set-up. Banking for small business is one component that should not be taken lightly. Banking for small business refers of course to the kind of financial structure that one's business is built on. We can better illustrate it when we take the case of a friend, a Chinese immigrant accountant who discovered that his passion for cooking could be a source of income through a small restaurant. As with most people who suddenly come up upon a seemingly clever entrepreneurial idea, the last thing they would spend time on analyzing are the business's banking needs. Banking for small business they thought was not as important as the menu. Nothing could be more wrong, or foolish. Banking for small business rule of thumb is setting up the financial structure first because you have to realize that it is a business and therefore subject to the rules and regulations that govern businesses. Banking for small business Rule No. 1 is formalizing that financial structure by setting up a banking account purely for that business alone. My Chinese friend may be excused from this oversight because Asian businesses are not as strictly regulated, but American businesses are and strictly so. The wisdom of clear-cut rules in banking for small business is that it saves you from head-aches along the way when your business expands considerably. When you avoid mixing your business funds with your personal ones, you can also avoid the greater problem of being scrutinized by the IRA who might find fault in your books; remember that regardless of the size of your business, it is still a business and as such the deduction of certain expenses must be clear-cut. Don't worry about the extra expenses to be incurred in setting up a business account. Focus on expanding your business so that profits will cover the initial costs. Banking for small business rule no. 2 is being forthright and honest with your tax declarations come tax time. If you have made it clear from the start that your personal expenses were different from that of your business, you are in for smooth sailing ahead. Woe to those who failed to do that and who must now get into the hodge-podge of expenses, separating the personal from the business related. The truth is told that while state or federal laws do not require businesses to have their own banking accounts, rules on tax auditing clearly make it necessary for such formalizations. Tax period provides a litmus test so to speak for small businesses that must pass that crucial stage of knowing whether they will be there for the long haul. It is but logical to assume that businesses that never get their fundamental banking structure right will never last. Banking for small business need not be similar to facing your dentist for a necessary tooth extraction. While one does not have a choice but to face it, the experience need not be painful. Before embarking on a business, go to your nearest bank for some serious consultation on how to set up the proper financial structure for your business. |