Until it matures to a certain level of profitability, small businesses rarely have a chief financial officer to assist with money matters. It might be a single owner juggling too many tasks in too little time, and little financial expertise.

So when it comes to a small business checking account, what important details are worth understanding?

1. Transaction limits apply.

Business checking accounts are very different than personal accounts. Although most business checking accounts don’t earn interest, there are options beyond a bank’s standard business checking account. Type of business and location can expand your options. Small businesses, independent contractors, entrepreneurs and non-profits might be eligible for lower balance requirements, reduced fees and (occasionally but rarely) an interest-bearing account.

Better benefits come with a compromise, however. A small business account might have lower transaction limits for deposits, cash withdrawals and transfers that are suitable for cash flow patterns typical to small businesses.

If the limitations work with your needs, this compromise is worthwhile. Why pay for what you don’t need? Just be sure to think through how you’ll be using the account. For example, a small business account with low cash deposit limits might not work well for a restaurant, retail business or event venue that handles a high volume of cash. Fees for extra cash deposits could far outweigh savings in other areas.

2. Look at the big picture, not just one seemingly attractive benefit.

If shopping for a new business checking account, it’s helpful to look at the combined value of all benefits against your expected activity to be sure you are choosing the best option. Even though one account can seem attractive initially, it might cost far more in the long run once you take a close look at your business needs and account restrictions. For example, a “zero fee” checking account with heavy restrictions won’t remain zero fee for long if you can’t remain within its restrictions. Constant overage charges get expensive quickly.

It is important to keep an eye on your volume of activity as the business changes or grows, too, so you don’t find yourself paying unnecessary fees. Changing accounts at the right time is a smart financial strategy, and something a noteworthy banker will help you with. 

It’s useful to review what each bank considers a transaction, since fee schedules vary from bank to bank. Fees that directly apply (or don’t apply) to your business can be a benefit or a substantial expense. Common items considered a transaction include:

• deposits and withdrawals
• teller transactions (instead of ATM or digital)
• checks and debits paid
• automated third-party transactions
• direct deposit payroll transactions

3. Analyzed checking services can reduce or waive fees, but don’t fit every business.

If your bank account reflects a high volume of activity and maintains a sizable balance, many banks offer an “analyzed checking” account to offset fees (also called a metered or analysis checking account). Each month, the average daily balance of an account is compared to outstanding checks, transaction history, combined balances across multiple accounts, and other factors determining how profitable an account is for the bank, with a resulting “earnings credit” applied to offset the account’s fees that month.

The amount of  earnings credit is determined by each bank and often based on current market conditions, shifting monthly. This can make it difficult to predict. Because details vary based on the bank, it’s important to understand how it works at the bank you are considering before you commit to an analyzed checking account, and review it regularly to ensure it is the best option for your needs.

This type of account often is not suitable for small businesses with a lower volume of activity.   

Horizon Community Bank offers the best earnings credit around for business checking accounts! Most are eligible for 2%.

4. Credit card processing is often faster if it’s handled at the same bank that manages your checking account.

Since the transaction is processed using just one banking system and database, rather than having one bank digitally “talk” to another, time to process the transaction is reduced.

For a cash-dependent small business that heavily relies on real-time cash flow, reducing time between accepting a credit card payment and having cash in the account can be critical.

Having both services handled by the same banking institution can also result in reduced fees and more leniency with “pending transactions.” Funds credited to the account before the transaction has actually cleared can be quite convenient.

If your bank doesn’t offer credit card processing services, the end of the year is a perfect time to switch your business checking account to another bank. Just think how clean your records would be?

Banking services can vary widely, and be surprisingly complex for many business owners who don’t know the ins-and-outs of regulation, accounting and finance. If you have questions, we’re here for you.

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