How do you handle your business banking needs? Where do you keep the money?
(a) In a shoebox in my studio
(b) In my personal bank account
(c) In a separate business bank account
(Psst: I answered “C.”)
According to Forbes, approximately 40% of all non-employers (that’d be me – small business with no employees and business receipts of at least $1,000.00 annually), have revenues of less than $10,000 per year. My small business falls into this category. With revenues in this range, the cost of doing business can range from 10-20% of gross revenue. Think about it: business license, annual corporate renewal, accounting/bookkeeping, legal, phone, office supplies, basic sewing supplies, equipment repair (routine sewing machine service is just under $100) and business liability insurance quickly add up. My “basic cost to do business” is between $1,000-$1,500 per year, with approximately half of this being insurance.
So when my FREE business bank account announced it was going to charge $12.00/month for basic checking account services and not pay interest on the balance required to avoid the monthly fee, I started looking at alternatives. Actually, $12.00/month isn’t that bad in light of what some other banks charge…but still. $144 is at least 1.5% of revenue for small businesses like mine. I looked at other local banks and my credit union. My business doesn’t need cash handling services that require a brick and mortar bank, so I looked into online banks with remote deposit.
Based on my unique needs, here’s how the options ranked after a careful analysis:
(1) Online bank
(2) Keep existing account but transfer enough funds to avoid monthly fee
(3) Entrepreneur checking at local credit union
The difference between 2 & 3 is the convenience factor. Existing bank is 1/2 mile from my house. Credit union branch is about 10 miles away. Most of my sales are via PayPal or personal check. I go to the bank 1x per month on average.
I opened an account with an online bank and will be closing down my existing account by the end of the month. I’ll report back about my experiences with a virtual bank.