The Small Business Institute warns that the hidden costs related to banking are often underestimated by small businesses.
For small business owners in South Africa, banking is not just about having an account, it is also about understanding what you are paying for and its significance, as well as the impact that your decisions may lead to.
According to Investopedia, bank fees can range substantially from bank to bank, but with small businesses, even small fees really add up. Account maintenance fees, fees associated with transactions, overdraft fees, fees associated with processing international currency transactions, and merchant fees associated with using a credit card service charge the list of fees that account for lost money if not tracked.
“The owners of small business enterprise ventures could quickly find that their cost in the banking process is higher when all the fees occurring during the transaction are considered,” says Jane Adams, a financial consultant with Cape Finance Advisory.
Understanding fees is the first step in successfully negotiating with your banker. Additionally, having a personal business account can be another common business accounting pitfall.
Deloitte South Africa states that by commingling business and personal funds, business owners may find themselves facing serious compliance as well as tax risks.
Dr Azar Jammine, director and chief economist at Econometrix, explains that mixing personal and business finances is one of the most common causes of audit difficulties for SMEs. Use separate business accounts for ease of tax and audit.
“This will also safeguard personal funds in the event that the business incurs liabilities,” said Jammine.
It is important to understand what questions to ask before entering into a business banking product such as a loan, a line of credit, or a merchant services agreement.
“Total costs, including all the fees and charges, need to be clearly understood by businesses, as well as if there are minimum balances required. Businesses must also find out if there are any fees that can be waived or adjusted, as well as who to contact in case of a dispute,” said Sipho Dube, a business banking specialist at Standard Bank.
Changing banking institutions, although intimidating, is also able to optimise service delivery as well as cut costs.
According to Business Partners Limited, to achieve a smooth transition, the process should be followed in an organised manner. Clients are instructed to carry out an audit of their existing accounts, set up a new account that will be more advantageous to the business, inform customers and suppliers, operate both accounts concurrently for the transition process, and then finally close the old account when all transactions are completed.
Greenline Supplies accountant Lerato Molefe said it is sometimes complicated to reconcile accounts if there were existing accounts that were audited from a taxation point of view, including clearance of existing amounts in full. She further explained that this is resolved by opening new accounts, which enabled the company to analyse past transactions, giving it an avenue not to have to pay restart fees with the new accounts.
“It brought instant benefit in reducing our bank fees by 40% and simplifying our taxation compliance. We also were able to secure a small business loan, which we were struggling with before, due to this new system,” she said. With their personal and business accounts organised and separate, having all the right documentation in line, they’re able to rectify the complications.
Emily@vutivibusiness.co.za
