Entrepreneurs are so busy working on their business rather than in their business – as they should be – that sometimes your friendly neighborhood banker could end up robbing you blind! The following are four common banking mistakes made by busy small business owners.
1. Only Banking at One Bank: As a small business owner with 100 things to do, it is easy to settle in with one bank and do all of your banking activity through that one institution. This can have a number of ill side effects. When it comes time for a loan and your bank denies you, if you don’t have a relationship with another bank, you may be out of luck. Secondly, you should make banks compete for your business. Don’t simply give all of your business to one bank by default. Shop around for the best deals.
2. Failing to Focus on Collateral in Loan Application: When you are submitting a loan application, you may be asked for an executive summary. Make sure that your executive summary focuses on why you are a good risk for the bank. Don’t talk about your exponential growth or potential. Bankers want to know about the facts of your financial situation: your assets, liabilities, and what you can offer as collateral.
3. Relying Too Much on Line of Credit: If you run your business on a line of credit, as many entrepreneurs do, you may be setting yourself up for disaster if your bank decides to reduce or eliminate your credit line. This can actually happen and has happened to many small business owners during the current recession. Try to wean yourself off your line of credit if at all possible.
4. Carelessness With Bank Fees: Small business owners remember: Cash is king. You must avoid bank fees at all costs. What a careless way to let your money literally vanish into thin air. Don’t get too lax with your banking, even during those busy weeks and months, because when you look back at your bank fees you will realize what a hindrance they can become to your business if they are a recurring issue.
Don’t fall victim to these common banking mistakes. This may mean you need to hire a part-time bookkeeper or a CPA, but in the words of the E-trade commercial baby, avoiding these mistakes can “save you a pantload.”