Banking for Business

When Walter White quit his job as a high school chemistry teacher and began manufacturing the best blue ice methamphetamine on the planet, he did not plan for the tidal wave of cash that would come his way. When no more duffle bags of hundred-dollar bills could be stashed anywhere he felt was secure, he rented a storage unit and stacked the wrapped packets on pallets until his profits were the size and shape of a king size bed. Another entrepreneur would have engaged the helpful service of their local bank’s armored car service, but Walter had legal reasons to keep the accumulated pile growing until it weighed as much as a Toyota Camry.

Nothing is better than cash for a person-to-person, face-to-face transaction. Without cash, Craigslist would not exist. But the largest available United States denomination is $100, barely enough for dinner. Gone are the days of bearer bonds, which like dollar bills, belonged to the person who held them. Each was worth $5000. Walter White would have needed to buy over 30,000 individual bond certificates, though the last of their kind were up for redemption during the Breaking Bad timeframe. If converted to gold, Walter White’s stash would have fit in the trunk of a Camry but would have weighed twice as much as the car.

Satoshi Nakamoto modeled bitcoin after gold by designing in a maximum supply to be reached ever more slowly over a century, much the same as a gold mine would return a decreasing supply of precious ore over its productive life. Cryptocurrencies do not weigh anything as measured by the pull of gravity, but wherever there is wealth, there are security issues. If the cryptocurrency owner first memorizes, then shares with no one, the private keys, passwords and personal identification numbers (PINs) necessary for access, then the wealth is absolutely secure, unless something happens to the owner.

Those PINs, codes and alphanumeric strings of characters could be written down and stored in a secure location like a safe bolted to the basement floor with the gold with the guns needed to protect it. Or it could be stored in a password-protected crypto-wallet to be used for transactions on a cryptocurrency exchange. But then the digital cash is in someone else’s hands and they are keeping the records, so a bank may be a better choice.

Using a Bank

Most businesses use banks for their payments and receipts. Banks process checks, accept bills and coins, and insure deposits for up to $250,000. Bank-recorded transactions can be transferred directly to the income and expense sides of the business Cash Flow Statement.

For legitimate businesses, banks are essential. The Walter Whites of the world must become more creative. The Walter White sealed his pile of bills in 55-gallon drums, buried them in the desert, recorded their location with exact longitude and latitude, then stuck that note on his refrigerator with a magnet.

A business that is a separate entity from its owner’s household must have a separate bank account. The beauty of starting, owning and running a business is that it has a life and financial structure of its own that can be manipulated for greater profit, unlike a household budget which is managed for the wellbeing of its members.

Choosing a Bank

A local or regional bank (FDIC insured) or credit union (NCUA insured) can be a point of connection to customers, vendors, clients and services. Individual banks have onsite bank managers and they can often be key to how useful a bank can be to a business. A well-managed bank operates as if its customers’ businesses were its business. The better they do, the better the bank does.

Which bank depends upon what the enterprise needs most. If the daily transfer of cash is essential, then a delivery service is needed that is more reliable than Uncle Billy in It’s a Wonderful Life. Companies whose payments are mostly electronic or online transfers need a user interface that is both user-friendly and secure. Treasure is often lost in the transfer.

Every business needs a Cash Flow Statement and a monthly bank statement is just that. If all business payments and receipts are run through the same bank, transaction entries create a business diary and history of its productive life.

Most businesses will one day need to borrow money for expansion into a new market, to get ahead of its competition or as a financial bridge between streams of revenue. 69% of small businesses used financing in 2016. Questions a business owner should ask:

– What business is the bank in? Does it cater to business customers or is it more geared toward mortgage loans and consumer credit?

– Do contacts with the bank staff, in-person or online, yield results?

– Has the bank financed other businesses locally or regionally?

– Is the bank willing to use Financial Statements to value the business as a source of collateral for loans?

Banking costs are expenses on the Cash Flow Statement and impact profits. Fees, charges and commissions add up. A click on the “Help & Support” button might lead to a statement of Terms and Conditions. Of special note should be anything called a “service.” The potential business-banking customer must read for details that could lead to unplanned charges in their accounts. Banking is a service business, services cost money and banks are also in business to make a profit. But some banks see their profits as directly correlated with the profits of the businesses they serve.

A business needs a bank as a source of financial records. If the point is profit, then income and expenses must be gathered and totaled. A daily bank statement must record transactions with all the essential details necessary to certify the entry on the business books. Profit is often found in the details.

Profit is also affected by taxes and business expenses are tax-deductible as long as they are properly recorded. Business expenses reduce, and gross revenues increase tax liabilities. An easily accessible and digitally transferable record of transactions allows a business to project and prepare for their annual tax burden.

Market

One business makes its money selling hotdogs and lemonade from a fleet of two-wheeled carts it distributes and collects daily. Another sells hotdog carts internationally. The former needs a bank that will aid its collection of cash and distribution of payments to vendors and employees. The latter needs the most cost-effective and secure means of handling international payments. Whatever the cycle of cash flow—daily, quarterly or seasonally—the best bank must facilitate business the transactions of the business without encumbering its profitability.

It’s About the Money

People who start and run businesses are like the parents of children in their protective attitudes. Bank and Cash Flow Statements are the report cards that gauge the progress of the endeavor—business or education. How much work was completed; how much business was transacted? What were the results? Thoughtful parents will seriously consider which school would be best for their children; so should business owners consider which bank is best.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management, LLC, Spire Securities LLC or its affiliates. Investing involves risk, including the loss of principal. Past performance may not be indicative of future results.

Spire Wealth Management is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC