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  • BONUM Staff

Foundational Business Accounts

Whether you have recently founded a startup or are a seasoned professional take a look at your foundational business accounts for optimal setup and long term success. But first an explanation of two concepts.

Compound Interest – the interest earned on interest when leading money. For example, $100 earning 5% interest a year, equals $105 at the end of the first year and $110.25 at the end of the second year. 
The Rule of 72 helps estimate the time required for an investment to double by dividing 72 and rate of return.  As an example, if you invest  or save a dollar a day for one year at a 10% annual return rate, in 7 years you’ll double your investment to $730.

Your business checking and saving accounts form the foundation to your financial system. In your quest for a high interest rate with no fees, don’t forget to ask about virtual deposits, ATMs cards, international transaction fees and anything else you may need to run your business. Comparison shop and research for the best deals. Look for, high-interest, low-maintenance, online banking, autopay, and customer service in credit unions or member-owned banks. Avoid, fees (additional and hidden), poor ease of use, and organization with a bad reputation like Wells Fargo and Bank of America.

If you’re not a U.S. citizen you can open U.S. bank accounts, but each bank has its own application criteria. Know them and ask questions before you apply. Whenever possible you want to automate your financial system to ensure saving and avoid missed payments and overdrafts. Direct deposit and autopay can even be used to negotiate no or low minimum account balances.

Build your business credit history. In saving and checking accounts you want a high interest rate because that’s what the bank pays you for you lending them your cash. With credit you want a low interest rate, because that’s what you pay the bank for leading you money. In receiving leading you're vulnerable to the harms of compound interest, but by monitoring rates across your accounts can keep ahead of the game.

• Negotiate a lower APR
• Get all fees waived
• Use your rewards
• Setup automatic payments
• Pay off your credit card regularly
• Get more credit (if you have no debt)
• Keep your cards for a long time and keep them active

Investing accounts form the foundation to long-term financial security. They’re a source of beneficial compound interest and lower taxes. You want to open 3 accounts: a business brokerage account, an IRA, and a health savings account. If you have employees consider 401k plans. When weighing your options, know the terms- consider early cash out penalties, benchmarking, and tax implications. Our favorite retirement accounts for small business owners are the SEP IRA and Solo 401k. Both let you defer substantial sums of income. A solo 401k even allows you to defer from profit sharing. Setting up automatic deferrals with irregular revenue can be tricky, but is key. For HSAs remember you must be enrolled in high-deductible health insurance plan. The pre-taxed income helps lower health costs and little know fact you can invest the balance.

Additional Resources

Thank you for reading, Beyond Business: Musing from a socially conscious international small business.

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