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Top Banking Mistakes Small Businesses Make and How to Avoid Them

By Deborah Jeanne Sergeant

Your business finances are important to its success. By extension, your banking practices can also affect your success. A few area bank leaders shared common banking mistakes small business owners tend to make and how to avoid them.

• “Not working with a trusted partner, whether a banker or CPA, you need to work with someone frequently. You need to update both with what’s going on in their business. Talk with us now before it becomes an issue. If we’re in the dark and you experience an issue, we don’t want to be surprised. You need full disclosure so we’re ahead of any problems down the road.

• “Not keeping accurate records. Or waiting until the end of the quarter before reconciling accounts. You need to be aware with what’s happening with your accounts. Those who don’t reconcile two or three months, there could be a fraud issue. There are timing issues when you bring fraud issues to a bank.

• “Not filing taxes. It sounds basic, but when you come to the bank and ask for a loan, we need your last three years’ tax returns. If you haven’t filed in two years, we’re not going to be able to help you.

• “Fraud protection is something small business owners should be aware of. Monitor your accounts and make sure you can reach your banker when you need to. Community banks are more easily reachable than larger ones. The local community banks, odds are someone knows your business if you live and work and bank in that area. We will discuss your loan request and someone will know you. If the approval gets sent to Buffalo, they won’t know your local business.”

— Angelo Testani, senior vice president in commercial loans at Seneca Savings in Baldwinsville

Richard Shirtz
Richard Shirtz

• “One thing small business owners need to be cautious of while determining who to bank with is narrowing their consideration to singular items, such as loan interest rates. It is very important to expand your review and look at the quality of the bank to understand the direct and indirect costs of doing business with that bank.

• “Direct costs of other services include things like checking account fees, wire fees and overdraft fees. Indirect costs involve the time it can take you to resolve any issues that might come up, including billing and other service-related issues. This is where the quality of communication with your banker plays a critical role. Is your banker a one-person show or is there a broader support team, including a relationship manager and a branch manager, that jointly service the account? Who else is on their team?

• “The depth of expertise and services at the bank is important to consider. In most small businesses, time is money. When time is spent tracking down people to resolve an issue or answer a question, that means time taken away from focusing on the core of their business. Making sure there are consistent banking contacts can help to maintain stability and create a solid relationship history with the bank.

• “Small business owners should ask about services such as insurance, wealth management, 401K services, personal mortgages when evaluating a new bank.”

— Richard Shirtz, regional president for NBT Bank

• “Not having a relationship with their banker or avoiding keeping their banker in the loop on what they have going on with their business is a far too common mistake. The more your bank/banker knows about what is going on with your business the more they can do to help you achieve those objectives. This hurts a business in the form of lost opportunity to take advantage of their banker’s expertise, etc, and potentially a more time consuming and difficult process to access capital — borrow — when they need to or are ready.

• ‘Another common mistake is not having your financial information in order before contacting your bank to discuss a potential loan. All banks are going to be looking for the last three years of financial information (tax returns, financial statements, a personal financial statement, etc) to evaluate the loan opportunity, why not have those items readily available when you meet with the bank? Better yet, send them over when you schedule the initial meeting. Having that information ready to go before the banker even asks for is a strong signal that you are highly organized, well prepared and serious about your business.

• “Clients should have a clear understanding of what their needs are from the bank before they approach the bank. Those needs should be communicated early in your conversations so that the bank can get you in contact with correct resource to help you with what you are looking for.

• “While knowing what you are looking for is critical, not being open to suggestion is even more problematic. If you approach your bank and are only open to one specific preconceived solution you are losing out on the opportunity to explore a better alternative. Nearly all modern banking needs have several potential solutions and the array of solutions is constantly shifting. You are doing yourself a disservice to not listen to what options are available to meet your needs.”

— Bill Murphy, chief retail banking officer at Solvay Bank

• “The most important thing for a small business owner or start-up is to have a plan written out in terms of what the business is going to do, the goals of the business, a marketing plan and with that to address sales. It is easy to deviate from the plan and necessary at points but sticking with the plan is important. You’ll have defined sources and uses of revenue and that’s crucial to the operation.

• “As a small business, it’s recognizing what you’re good at. If there are certain areas like finance, it’s important to have a strong financial team or CPA inside or outside the organization to help manage the cashflow. That’s an option for some small business owners. Having someone else advise is key.

• “A small business owner may want to think about separate accounts for separate entities or separate payment sources. It depends upon their business banking needs. Establishing a business checking account is key to all of this.

• “They could also benefit from lines of credit for short-term needs if that’s available to them. It depends upon their need. A line of credit can help on a shot term basis to fill the gaps in revenue shortfalls in a short month or a slow season.”

  Miles Bottrell, vice president of the Syracuse branch at Adirondack Bank