Best bank for Small businesses

[AmithS]

Dave, are banks really willing to remove clauses from their contracts?

[Dave A]

Well, I've always been given the option of an open surety or a specific, limited one by Standard Bank.

Of course they punt the open surety first, arguing it's so much easier to increase limits and add new deals - but the specific limited surety format is a standard option. You just need to insist on it.

[Pap_sak]

FNB used to allow you to deposit unlimited amounts of cash into a normal savings account at the ATM....the about 6 months ago they changed that to 5 times a month. That was still ok (I could get 130 notes into an envelope for the one ATM in town, funnily enough only about 120 in the other!)...now, last month, they have dumped that altogether, now you are paying a percentage on everthing - bank fees for me are going to rise about 700-800 p/m.- ie chew up another 2.5k of sales* Even then, they are still probably the cheapest bank offering business banking - Capitec is the best for personal as well as merchant services, unless you are turning over quite the cash mountain in which case the big boys might look at you.

* I will now be paying as many suppliers as possible with cash and making my problem theirs, lol

[AndyD]

FNB also allowed you to deposit cash into your home load without charges then you could transfer it across into your business electronically also without charges. Not sure if this is still the case, they probably plugged this hole already.

[wynn]

I have hated cash deposit fees with a passion for years, the banks close the loopholes faster than you can find them.

Depositing cash into your home loan would be poetic justice as the bank won't charge themselves a cash deposit fee, I hope they don't penalise you by crediting your account by less than you deposit for doing it?

Yes I have found that paying suppliers with cash is the easiest way to avoid fees, but they are even getting shirty now and refuse to give a settlement if you do pay cash, the secret is to spread it around a bit so you don't use one supplier all the time.

Insurance policies, unit trusts, telephone accounts, L&W and rates accounts, anything that has an 'Easypay' number, are other great way of getting rid of cash and making your problem someone elses, provided you have a bank PnP or Checkers close by.

[Miro Bagrov]

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.

[Blurock]

=Miro Bagrov;59486]
The bank is your servant, they are there to make you money.

I do not think your bankers will agree. The reason for their existence is to make money off your account. You are responsible for generating your own business 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.

This argument is flawed as you should have a higher markup that 0-5% to sustain a business. Interest earned by a business is incidental unless you have an investment company. Most businesses can buy stock and have a mark-up of 20 - 50% or even more. Opportunities will be lost if the money is left in the bank. Consider your after tax return on an investment account and this is a no-brainer.

Why does a business account have higher fees than an individual's?

Fees on my business account are often lower than those on my personal account which has a fixed (package) charge. That is because I use electronic banking and channel all my debit orders through the personal account where it is "free" (included in he package).

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.

Exactly. It does not work for an operating business. The other tips and suggestions were good and l agree that banking depends on your own personal and business circumstances. Obtain quotes and use what is at your disposal. Do not fall for sales talk, but get the facts and how it will suit your business.

[Miro Bagrov]

I do not think your bankers will agree. The reason for their existence is to make money off your account. You are responsible for generating your own business income.

Yes. I'm sure they disagree with me.
They are still your servant - they already make an income when they lend your money out to others (accounting for about 50% of their income). Therefore they do not need to charge you fees to make an income in my mind. They are not doing me a favour by holding my money. I'm doing them a favour and I expect positive NETT returns. (That type of thinking).

Fees on my business account are often lower than those on my personal account which has a fixed (package) charge. That is because I use electronic banking and channel all my debit orders through the personal account where it is "free" (included in he package).

Good. But I will bet you R400 that I can make you pay zero bank charges for your business. I will tell you exactly which accounts to open, where, and how: If your bank fees are R0, I get R400, if they are less than R20 pm you can give me half back. Only R200.
However, if the bank ends up paying you more than you pay them, you give me R500. If I can't get your bank fees in under R20 per month you don't have to pay me anything.

[Blurock]

Good. But I will bet you R400 that I can make you pay zero bank charges for your business. I will tell you exactly which accounts to open, where, and how: If your bank fees are R0, I get R400, if they are less than R20 pm you can give me half back. Only R200.
However, if the bank ends up paying you more than you pay them, you give me R500. If I can't get your bank fees in under R20 per month you don't have to pay me anything.

I am sure you can, but I do not intend running my business from an investment or bond account. I need to transact on a daily basis and I need unlimited access to funds with no limitations on transfers.

I do use an investment account which offset the charges more than adequately, but that is due to the nature of my business. The same account structure may be totally unpractical for a retailer or manufacturer.

For my personal transactions I only use a credit card which I clear once a month so I do not pay any interest. My cash back and discount rewards is more than 10 times the card fees. So I am still winning, but that depends on each one's personal circumstances and lifestyle.

[Miro Bagrov]

Ah, I would have suggested, before withdrawing money, move it to an investment account ("call account"), and then withdraw it. This means no cash withdrawal fees. Sometimes, I am aware banks give you several free withdrawals though. Another trick is to use cash deposits to pay creditors and overheads, because then you don't carry transfer fees. That's if you could position the accounts so that you have an account that receives deposits for free, makes withdrawals for free. Actually, there are hundreds of tricks. So yes, very individual based stuff.


This might help some people:
An old lady asked me to give her a list of the best place to invest "long term" with "no risk" to the value. It gives an idea of the difference between banks.
On close inspection we can see that the "Big 4" offer the lowest rates.

Investment Analysis

Assumptions:
Amount +/- R 20 000
Term: Long Term (excludes all short term investments)
Risk: Very Low
Date: 14 September 2011

Investment Name Interest Rate
ABSA Fixed Deposit (7 - 11 months) 5.16%
ABSA Fixed Deposit (12 months) 4.96%
Postbank Term Save (Post Office) 5.45%
Bidvest 121 day Notice 6.50%
Bidvest Fixed Deposit (12 months) 5.60%
FNB Fixed Deposit (12 months) 5.22%
FNB Fixed Deposit (24 months) 5.52%
FNB Seniors Fixed Deposit (12 months) 5.75%
FNB Seniors Fixed Deposit (24 months) 6.08%
FNB Flexi Fixed Deposit 4.25%
Standard Bank Fixed Deposit (12 month) 5.05%
Standard Bank Fixed Deposit (24 month) 5.50%
Standard Bank Fixed Deposit (48 month) 6.55%
Standard Bank Market Link 3.82%
RSA Retail Bonds 2 years (PostOffice) 7.25% (Fixed Rate)
RSA Retail Bonds 3 Years (PostOffice) 7.50% (Fixed Rate)
RSA Retail Bonds 5 years (PostOffice) 8.00% (Fixed Rate)
RSA Retail Bond 3 year Inflation Link Inflation + 2.75% (Currently Inflation = 5.3%)

Please Note:
1.FNB is offering Fixed Deposits specially for seniors
2.Government Retail Bonds offer seniors the right to receive their interest monthly into their bank accounts
3.Interest payments can be sent into an account or re-invested with most investments.
4.Fixed Rates will remain constant throughout duration, the others can change
5.Inflation at the moment is 5.3%
6.I forecast inflation to rise for the next 2.5 - 3 years, then drop again.

I would suggest investing in government bonds since they offer the highest return.
(The interest rates on government bonds are expected to increase over the next 2 years, the highest ever has been 11.5%. The best strategy might be to invest in the bank for a year or two then to take the money + it's interest and move it to a fixed rate RSA Retail Bond @ roughly 9.25% - 10%.)

Regards,
Miro Bagrov