Most Common Banking Mistakes Entrepreneurs Make

Originally published on Early Growth Financial Services.

If the point of a business is to make money, then obviously you want to be very careful when it comes to managing that money. Your bank is key in this matter. Choosing a banking solution is one of the most important decisions you need to make as an entrepreneur. Your bank is more than just a place to store your money; it’s a tool to help you to minimize your financial risks and to manage your cash flow.

Your work isn’t done once you’ve selected your banking solution; it’s only the beginning. You need to closely manage your banking to maximize the advantages and to avoid putting your
company at risk.

In my experience, I’ve seen so many startups making the same banking mistakes and creating serious issues for themselves. Here are some of the most common banking mistakes, and how to avoid them.

Co-mingling of personal and business accounts. So many entrepreneurs are guilty of using their personal expenses for business usage and business expenses for personal. You simply cannot use one bank account for both personal and business. Open a separate business account and take pains to keep the costs separate; if necessary, you may transfer funds from your personal to business, and vice versa, as long as the accounts live separately.

Not doing a month-end bank reconciliation. Every month you should review your bank statements, as a way of monitoring your banking activities, to ensure that everything adds up. Doing so allows you to catch little mistakes (like a bank teller error) that, left undetected, can create larger financial issues as well as larger losses that you can easily prevent. Month-end reconciliation will also bring to the forefront any instances of fraud so it’s a good fraud protection control. Also reconciliation allows you to keep a close on company transactions and performance.

Lack of understanding of your cash forecast. If you haven’t projected out your cash flow, you could find yourself drowning in debt, unable to pay bills. To avoid being overleveraged (and at risk for bankruptcy), up until the point at which your company is cash-flow positive, you’ll want to plan your finances on a weekly basis. Once the cash starts flowing and you’ve built up some reserves, you can extend your planning periods from weekly to monthly.

Not choosing the right banking partner. If you’re an entrepreneur, you want to select a bank that has a strong focus and understanding of the needs of small businesses. Your bank will be your business partner, part of your invaluable ecosystem. Make sure you’re finding the right partner.

Using debit cards instead of credit cards. Using debit cards for business carries greater risks than using credit. There are fewer protections for your debit cards and any fraud on your debit card could be far more devastating than fraudulent activity on your credit card. The “unlimited access” aspect and liability limits of a debit card are problematic. In case of theft, your entire business account could be drained before you even know it, leading to bounced checks, negative relationships with vendors, and overwhelming liability. Debit cards are also harder to track than a credit card, particularly if more than one person has access to the debit card.

Lack of preparation for bank loans. If you are seeking a bank loan, you need to prepare your financial projections and statements accordingly. Banks want to see valid statements in order to deem your small business worthy of a loan.

There are, of course, other banking issues that entrepreneurs get themselves into trouble with including such seemingly small mistakes as postdating checks, up to larger issues of financial strategy such as pursuing yield at the expense of liquidity or capital preservation. But, over all, the list I’ve provided contains the top banking issues I’ve seen.

As with any business relationship, it’s your responsibility to proactively manage your affairs. Banking is no exception. Managing your accounts properly will give you greater insight into your finances, greater control over your business, and greater financial protection.

How Mobile Payments are Powering Businesses that Thrive on cash Flow

Originally published on

Time is money. This common idiom, widely attributed to Benjamin Franklin, is what drives a great deal of innovation in today’s tech-meets-business world. Mr. Franklin could not have anticipated mobile payment apps, but I bet he would recognize what they mean for today’s on-the-go entrepreneur slowed by the invoicing slog.

Invoicing creates bureaucracy and doubt over when and how (and sometimes even if) entrepreneurs will be paid. All this uncertainty causes worry about cash flow. For entrepreneurs providing services like home repair, lawn care or house-cleaning, visiting multiple locations each day, invoicing is often done in the car between jobs or at home after a day filled with work.

In today’s mobile world, your business should instead automatically and instantly receive payment the moment the work is done.

With the recent launch of Apple Pay, as well as the ongoing presence of Google Wallet and PayPal, opportunities are increasing for people to swap their wallets for smartphones. These
technologies are building momentum within the service professional community, allowing no-touch transactions promptly after service delivery. There’s no invoice, no drawn-out payment cycle and no harassing follow-up calls to clients who are late to pay (think Uber).

Not only do new tools exist for entrepreneurs and solopreneurs to streamline their billing, but many consumers are already using the technology. Mobile payment apps might just be the nimble entrepreneur’s new best friend, and one of his or her most valuable tools for building a successful business. Here’s why:

They’re fast

Perform a service, get paid. That’s how mobile payment apps drive business, disrupting traditional invoicing so there’s no cumbersome process or ongoing game of chase-and-remind for clients who are behind. This instantaneous payment frees up entrepreneurs to put their time where it counts – on their actual work. With extra time on their hands, entrepreneurs can finish more projects and win more clients.

They keep your cash flow…well, flowing

Business credit has been tight since 2008, making it hard for entrepreneurs to rely on credit to support their operations. Being paid immediately means more small businesses that rely on their cash flow will survive, grow and thrive, while more accurately monitoring their balance sheet to simplify budgeting. This opens the door for tenacious entrepreneurs ready to make the startup leap.

They’re affordable

Typically, business owners who accept credit and debit card payments have to invest in a merchant processor account. These accounts come with a number of baked-in costs, including gateway fees, statement fees, monthly minimum fees and transaction fees, totaling between $25 to $35 per month depending on who you use. Mobile payment options allow entrepreneurs to process credit and debit card transactions without a merchant processor account.

Mobile payment options free entrepreneurs from long-term contracts and numerous hidden fees, offering clear pricing and fast deposits for a fraction of the cost. These services still come with a small processing fee, but as the space becomes more competitive (as I anticipate it will), those fees will shrink.

They’re convenient for you and your clients

While you’re enjoying a life without invoicing and waiting for payments, your clients will enjoy a life with a lot less check writing, cash withdrawing and reminder pinging. It’s freedom for both parties. At the same time, mobile payment apps can help entrepreneurs protect themselves from the repercussions of cancelations by automating billing on their cancelation policies.

Mobile payment apps make life easier for today’s entrepreneurs but they will also launch more small businesses into existence. Professionals will find the independence, flexibility and support they need to take back their time and turn it into  success.

About the Author – Sam Madden is the co-founder of PocketsuitePocketSuite is an iPhone app helping self-employed professionals run their business and get paid. Prior to PocketSuite, Sam was the founder of Interactive Buyside, the first open marketing platform for investment professionals. In a past life, Sam was a director & portfolio manager at distressed credit and long/short equity funds (Credit Suisse, Highland Capital). He graduated from Colgate University and is a CFA charterholder. 

Steps to a Smooth Monthly Close For Your Small Business

This article was originally published on the Early Growth Financial Services.

Monthly close is the process of recording and reconciling all transactions that occurred during the month, then closing the associated temporary accounts: i.e., “closing the books.” The goal is both to deliver a snapshot of your business’ financial position and provide a fresh start to the new period. Your closing figures are the key building blocks for creating accurate financial statements. Not only is a reliable and efficient process important for tracking performance, it’s also a vital part of your financial management. How you handle monthly close is a powerful statement on the strength of your team, your financial controls, and the health of your business. Clearly this is an important practice to get right!

Below, I’ll break down the steps involved and provide some pointers on how to set up your process to guarantee the best results.

First start with a good system. I’m not just talking about your accounting software but also about your system for conducting the close.This includes the people, processes, and timelines involved. Make sure the key steps and tasks are outlined, account-abilities are clearly communicated, and that you’ve put in place a process for higher level management review.

Closing Date — Determine a standard closing date that will be consistent from month to month.

Best practice: Set up a short cycle. You should be able to complete the process within 5 days.

Review — The first step is to review changes to your balance sheet. Start with checking that cash amounts accurately reflect transactions that occurred during the month by checking them against your bank statements. You’ll also review inventory values (if applicable), check A/P amounts against vendor invoices, assess A/R for collectibility, and review debt balances against recent payments.
With that done, you can move on to income statement items, with the objective of making sure expenses are properly categorized and tied to sales recorded. The main ones are costs associated with sales, prepaid expenses (e.g., legal, materials, overhead, rent, taxes), and payroll and benefits accruals.

Best practice: Use checklists to make sure you’ve covered all the categories.

Make Adjustments — Part of closing the books is reconciling/adjusting projected revenues and expenses for the actual amounts incurred so that your accounting entries balance.

Best practice: monitor which areas are consistently driving the largest adjustments to so you can make changes to staff training or your estimation process.

Record/Document — Any changes should be recorded in the general ledger, your master set/chart of accounts, before you close temporary accounts (those set up for use during that month) and create a trial balance (display of all your permanent accounts and their remaining balances). Review these for accuracy and get the appropriate sign-offs.

Best practice: While your accounting software will ensure that debits and credits balance, assign a reviewer to check that your entries are included in the right categories and that they are not duplicated or missing.

Reporting — Needless to say, reports are critical for tax compliance, part of required disclosures to stakeholders and creditors, and indispensable for explaining the business’ performance and value to investors. Generating reports also allows for transparency in your business. You can track where you are versus plan, be alerted to changes in operating trends, identify the key drivers of out/under performance, and refine projections. A clean set of books will also save you time and money by avoiding an expensive clean up effort come tax time!

Best practice: Make sure your reporting captures the performance measures most relevant to your business.

Tips on how to set your Business up the proper way.

Statistically 33% of small and medium sized businesses get fined for not doing payroll the correct way?

Most start up business owners have very little knowledge let alone any expertise of the confusing web of state, federal & local regulations around compensation, insurance and tax compliance, or of how to manage employee benefits programs. And when it comes down to it, founders should focus their greatest energy on product development and customer acquisition efforts — not on compliance and administrative tasks.

Robert cited Y Combinator alum and Amicus CEO Seth Bannon, in advising founders not to cut corners on important infrastructure. Instead, he advises outsourcing non-core functions early. With time being a resource often just as scarce as money is, finding the right professionals to set up your infrastructure correctly will save you time and money in the long run.

Starting Up: Must-haves

  • EIN (Employer Identification Number) — Also known as a Federal Tax Identification Number, think of this as a social security number for your business. They’re free to set up and you can apply for them via the IRS online.
  • State unemployment Identification Number — The state, or states, you operate in will provide you with a number once you register for your state unemployment insurance account.
  • Business bank account — Open an account and get a business credit card. Some good startup banks to consider are PNC, SVB, First Niagara, and Peoples United Bank.
  • Workers’ Compensation Insurance — This protects employers from employee claims for injuries arising while on the job. It is a requirement in nearly every state. If that wasn’t enough to concentrate your attention, fines for non compliance are in the tens of thousands of dollars range.
  • ACA — Once your business reaches more than 50 employees, you must provide health care coverage. Businesses that don’t meet this requirement could face fines of up to $2,000 per employee for non compliance.

Starting Up: No-nos

Even if you do everything else right, these huge, and sadly very common, mistakes can be make or break.

  • Never, ever commingle business and personal assets or accounts — Not only does doing this make it hard for you and any accountant you eventually bring on to properly account for business transactions, it also could expose your personal assets to liability claims arising from lawsuits filed against your business.
  • Don’t pay employees’ salaries from your personal bank account — In a worst case scenario, a disgruntled employee could go after your personal assets as part of a legal claim.

Starting Up: Insurance & Benefits

  • Find out what your disability insurance obligations are — Requirements vary on a state by state basis.
  • Get general liability (Directors & Officers) insurance — Though there are no legal requirements to carry liability insurance, here are a couple of reasons why it is worth your while: 1) it’s the smart thing to do and 2) investors will require it.
  • Choose your health plan offerings — Whether for competitive reasons or to meet legal requirements, you’ll more than likely to need offer employee health insurance.Whether you select an individual or a small group plan is a question of preference.
    • Decide on a PEO or open market purchases — When it comes to choosing a healthcare provider and coverage, you’ve got a couple of options. You could go with a Professional Employer Organization (PEO). These allow small businesses to pool their resources and benefit from a PEO’s stronger negotiating position for benefits and insurance to get access to better services and much lower rates on plans versus purchasing on their own. Choosing a PEO, will also save on administrative costs.

Option two is to buy your insurance and benefits coverage on the open market via insurance brokers.

Starting Up: Legal and Employment Law Considerations

  • Be careful how you classify workers — Going with contractors can be cheaper for employers than hiring employees, but fines for improperly classifying someone as a contractor when he or she meets the legal definition of an employee are very high.If you have any questions as to the right classification for someone, do your research, including getting professional help. More often than not, if you have the question, you should probably classify that person as an employee.
  • Get Your Structure Right — While this is a business decision that involves tax and ownership considerations, C Corps are the way to go if you plan on raising money from institutional investors and Delaware C Corps are the most common form.
  • Register your trademarks — Protect your proprietary technology, licenses, and any inventions earlier rather than later. You can do this via the uspto or Safeguarding these should be part of your broader IP strategy, and it’s definitely something you can expect investors to ask about.

By focusing on your core competencies, bringing in outside professionals when you need to, and dodging rookie mistakes you’ll not only get your startup infrastructure set up as efficiently as possible. You’ll also be laying the groundwork for your business to grow and scale.

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Repeat Sales is the Goal

The greatest compliment a customer can give your business is repeat business. You want them coming back again and again to your store or website. The clients that continue to comeback for more of your services or products are called “loyal” customers. A loyal customer is one of the greatest things for your business for these three reasons.

  • They are less expensive. According to Lee Resource Inc, it costs a business 5 times more to acquire a new customer than it does to retain existing customers.
  • They bring in more profit. Based on Bain & Company study, improving your customer retention rate by 5% can increase your company’s profitability by 75%.
  • They will drive growth. Gartner Group research shows that 80% of future business revenues are generated from 20% of existing customers.

So hopefully you understand now how important loyal customers are. So the question to answer now is, how do you do it? The following are 4 high impact  strategies for establishing a loyal customer base and driving repeat sales:

  1. Get to know your customers – Invest in technology systems that allow you to collect demographic information about where they live?, who they shop for?, what they like and don’t like?, what they read?, how to reach them? as well as buying pattern information like what they buy?, how often they buy it?, and how much they pay? With this type of information, a business owner can easily run and analyze reports to determine how best to re-engage customers. Many entrepreneurs invest in point of sale (POS) systems and
    customer relationship management (CRM) technology that can help them easily collect this customer data during the appointment booking and check-out process. For example, Salesforce, a CRM system, enables entrepreneurs to record the contact information and transaction history of their customers. Similarly, POS systems like Paypal, Square, PocketSuite, and others can track and store detailed data about customers, including their preferences (based on user settings), previous purchase information, contact information, product/service reviews, etc..
  1. Keep in contact – The best way to remind customers about your products and services is to communicate with them regularly. Many business owners maintain blogs and e-newsletters to share updates, offer special deals, and showcase their offerings. These are all effective customer retention tools. However, be careful in how and how often you share information and updates with your customers! You don’t want to overwhelm them by contacting them too frequently or sending them too much information. Because if you do, they will start to treat your messages as spam and downgrade you to junk mail. There are many great customer communication solutions like MailChimp and Constant Contact that make it very easy for entrepreneurs to stay in regular touch with their customers.
  1. Give them incentives – If loyal customers are truly more valuable than new customers, then roll out the “red carpet” for them. Make them feel special either by recognizing them, providing them discounts, and/or giving them exclusive offers. Yelp, an online consumer review site, has a special program to cultivate loyal customers called “Yelp Elite”. It is almost like a secret society Yelp customers who frequently post, high-quality reviews on their site. The Yelp Elite get invited to great parties, get special badges on their Yelp profiles, and they get all sorts of free food, drinks, and services from retailers and restaurants on Yelp. Pretty cool, huh!?! Most customers would love that kind of treatment. Taking the time to think through and offer an incentive program for loyal customers could help dramatically improve your customer retention.
  1. Repeat purchasing should be a breeze – It should be very simple for your customers to buy and rebuy products and services from your business. If you sell a service, encourage them to book their next appointment when they are checking out so you lock in their next purchase while you still have their attention. If you sell products, provide them with an option to leave their credit card on file so you can send them refills regularly. And/or throw in a free home or office delivery service for purchases over a certain amount so they don’t have to worry about the logistics of getting to and from your business location. The core principle is very straightforward. The easier you make it for customers to complete a business transaction with you, the more often they will!

Getting customers is important but keeping them is even more important. So invest in systems that allow you to develop targeted email campaigns. And take the time to design incentive programs that will delight your existing customers. And then make it really, really easy for them to keep buying from you.