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I work in the banking industry and also have my own business.
As a businessperson your way of thinking should lead to different goals than consumers. I think as a small business you need to change banks when it suits you and not based on loyalty of any kind.
We should all bank (as business people) where:
1. costs are low or non-existent
2. earn highest return on money forwarded (called interest)
A basic principle:
The bank is your servant, they are there to make you money.
You would not employ an employee if he did not help make you an income first which exceeds his salary. Neither should you hire a bank if it does not somehow provide you with a positive income. An example - you earn R400 interest in your current account structure. However, fees amount to R600 for the same period. This is a loss - consider finding another bank, or not using a bank. The only reason why income should be kept electronically is somehow the interest earned covers and exceeds the expenses paid.
Many banks have structured their accounts like hooks. To lure you in, then eat you. An example: Why does a business account have higher fees than an individual's? If that is a case, then use a personal account (assuming no other expenses are involved).
To see how to save money you need to consider how you receive income and pay expenses, and where you keep the money in between:
1. Cash Income.
2. Electronic Income.
3. Online Income.
4. Electronic Expenses
5. Cash Expenses
6. Money is kept cash
7. Money is kept electronically
Expenses:
Electronic expenses are debit orders to the bank, or electronic transfers attract a fee of R3.5 - R4.5 or a monthly fee.
Cash expenses are a cleaver way of avoiding all fees, because you are effectively passing on the banking fee on to the recipient. However, this is only true if 1. There are no withdrawal fees, and 2. no other fees for carrying cash.
If we receive income cash there may be no need for a bank account. Or maybe there is. Some might see banking fees as the premium for safety of cash (the transfer of physical holding risk for cash) to an intermediary.
Cash Income is free. However the deposit of cash attracts deposit fees (either 2-3% of the value or a monthly charge) .. Using cash to pay expenses is free, (because as I mentioned we pass the cost to someone else).
Electronic Income: a result from trading via bank cards, receiving payments through debit orders and electronic payments. Electronic transfers do not usually attract costs. Swiping cards do however and in fact are the reason petrol stations no longer want to sell airtime via Point Of Sale machines.
Holding Cash Electronically the time the money spends lying around in the account should earn interest. The interest on can vary between 0 - 5% - this changes as the repo rates change.
Here are rough steps to follow:
1. Decide your profile:
What type of income does your business receive. What type of expenses do you pay.
2. Calculate your average monthly receipts and your payments.
Example: I receive R220 electronically around 40 orders a month and pay 5 accounts electronically.
4. Calculate your current bank charges.
5. Identify other banks, and other bank accounts.
Using your known incomes and expenses. Knowledge is power and knowing the fee structures of all banks and all accounts is the highest power.
6. Pick lowest cost for your profile.
7. Align your banking to your profile to minimise cost and maximise returns.
Change banks or account types.
Some Strategies to eliminate all bank costs or most bank costs:
Account Hedging:
Imagine that your bank account pays R300 in fees a month - you could cancel this out with an interest earning deposit which earns R300 interest a month. This hypothetically brings your monthly cost to 0. This does not always work out or is not always practical however. It ties up a lot of cash. It could be suitable for businesses who do not earn income every month and are too exposed to the bank fees. In most cases you would do better just using another account to ring the overall cost down to R50 a month and use this technique to wipe out the R50 cost and bring it to R0.
Account Re-Structure:
Move money out of current, cheque and savings accounts which is not needed now, or is not needed for more than a month and place it into investment accounts with maturities which match the expense.
Move Banks:
Find another bank, move away from the big 4. Look for the 5,6,7... etc. Smaller banks have more competitive attitudes.
Move Accounts:
Use another account which matches your income and expenses. Many businesses do not even earn an income for most months of the year - so why pay a monthly fee every month?
Move to Cash: (No Banks)
Sometimes banks may not even be necessary. If you have a good cash management structure and a good safety structure then you can even bypass banks for transactions.
Escaping Transaction Costs (not the same as escaping Banks) - you could close transactional accounts in banks and avoid the cost of deposit and withdrawal. While still keeping your investment accounts open and earning interest - that way you can still deposit cash but now it's free. So is it's withdrawal.
I will give you an example, I only use investment accounts - I never touch transactional accounts. Investment accounts have 0 fees, and earn interest. However this is not suitable to all businesses.
Hope this is helpful. We can discuss more specific businesses, or even specific banks too if anyone wants to.
As a businessperson your way of thinking should lead to different goals than consumers. I think as a small business you need to change banks when it suits you and not based on loyalty of any kind.
We should all bank (as business people) where:
1. costs are low or non-existent
2. earn highest return on money forwarded (called interest)
A basic principle:
The bank is your servant, they are there to make you money.
You would not employ an employee if he did not help make you an income first which exceeds his salary. Neither should you hire a bank if it does not somehow provide you with a positive income. An example - you earn R400 interest in your current account structure. However, fees amount to R600 for the same period. This is a loss - consider finding another bank, or not using a bank. The only reason why income should be kept electronically is somehow the interest earned covers and exceeds the expenses paid.
Many banks have structured their accounts like hooks. To lure you in, then eat you. An example: Why does a business account have higher fees than an individual's? If that is a case, then use a personal account (assuming no other expenses are involved).
To see how to save money you need to consider how you receive income and pay expenses, and where you keep the money in between:
1. Cash Income.
2. Electronic Income.
3. Online Income.
4. Electronic Expenses
5. Cash Expenses
6. Money is kept cash
7. Money is kept electronically
Expenses:
Electronic expenses are debit orders to the bank, or electronic transfers attract a fee of R3.5 - R4.5 or a monthly fee.
Cash expenses are a cleaver way of avoiding all fees, because you are effectively passing on the banking fee on to the recipient. However, this is only true if 1. There are no withdrawal fees, and 2. no other fees for carrying cash.
If we receive income cash there may be no need for a bank account. Or maybe there is. Some might see banking fees as the premium for safety of cash (the transfer of physical holding risk for cash) to an intermediary.
Cash Income is free. However the deposit of cash attracts deposit fees (either 2-3% of the value or a monthly charge) .. Using cash to pay expenses is free, (because as I mentioned we pass the cost to someone else).
Electronic Income: a result from trading via bank cards, receiving payments through debit orders and electronic payments. Electronic transfers do not usually attract costs. Swiping cards do however and in fact are the reason petrol stations no longer want to sell airtime via Point Of Sale machines.
Holding Cash Electronically the time the money spends lying around in the account should earn interest. The interest on can vary between 0 - 5% - this changes as the repo rates change.
Here are rough steps to follow:
1. Decide your profile:
What type of income does your business receive. What type of expenses do you pay.
2. Calculate your average monthly receipts and your payments.
Example: I receive R220 electronically around 40 orders a month and pay 5 accounts electronically.
4. Calculate your current bank charges.
5. Identify other banks, and other bank accounts.
Using your known incomes and expenses. Knowledge is power and knowing the fee structures of all banks and all accounts is the highest power.
6. Pick lowest cost for your profile.
7. Align your banking to your profile to minimise cost and maximise returns.
Change banks or account types.
Some Strategies to eliminate all bank costs or most bank costs:
Account Hedging:
Imagine that your bank account pays R300 in fees a month - you could cancel this out with an interest earning deposit which earns R300 interest a month. This hypothetically brings your monthly cost to 0. This does not always work out or is not always practical however. It ties up a lot of cash. It could be suitable for businesses who do not earn income every month and are too exposed to the bank fees. In most cases you would do better just using another account to ring the overall cost down to R50 a month and use this technique to wipe out the R50 cost and bring it to R0.
Account Re-Structure:
Move money out of current, cheque and savings accounts which is not needed now, or is not needed for more than a month and place it into investment accounts with maturities which match the expense.
Move Banks:
Find another bank, move away from the big 4. Look for the 5,6,7... etc. Smaller banks have more competitive attitudes.
Move Accounts:
Use another account which matches your income and expenses. Many businesses do not even earn an income for most months of the year - so why pay a monthly fee every month?
Move to Cash: (No Banks)
Sometimes banks may not even be necessary. If you have a good cash management structure and a good safety structure then you can even bypass banks for transactions.
Escaping Transaction Costs (not the same as escaping Banks) - you could close transactional accounts in banks and avoid the cost of deposit and withdrawal. While still keeping your investment accounts open and earning interest - that way you can still deposit cash but now it's free. So is it's withdrawal.
I will give you an example, I only use investment accounts - I never touch transactional accounts. Investment accounts have 0 fees, and earn interest. However this is not suitable to all businesses.
Hope this is helpful. We can discuss more specific businesses, or even specific banks too if anyone wants to.
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