Choosing a financial provider can be one of the most important business decisions you make. Here’s how to get it right, first time.
Whether it’s for our simple personal bank accounts, or more complex business and home financing, just about every adult in Australia has walked through the doors of a bank at some point to open an account.
However, for many small business owners, even getting to that stage can be a long and somewhat tedious process. There are so many variables to consider that reaching a decision can take up a lot of time and effort that could be better spent working on growing your business.
One thing that many experts do agree upon is that it is worth exploring as many options as you can for your financial services needs. There’s more to it than simply going with whichever of the so-called “Big Four” (Westpac, ANZ, CBA and NAB) you’ve been dealing with in the past. With so many options now available beyond the Big Four for small business, such as credit unions, regional banks, specialist business finance lenders and brokers, there’s really no excuse for not getting what you need to help your business grow and succeed.
What a small business needs
First up, there’s no one single solution to the problem of finding the institution to provide small business banking. It’s not ‘one size fits all’ – every small business is unique, and the needs of the business will often reflect the needs of the individual who is at the helm.
However, there are some universal elements that form the bassis of most financial services. Nathan Keating, GM of Melbourne-based Pearl Financial Services, says that there are some key elements that crop up time and time again in discussions with his own clients.
“Proximity of the bank’s local branch come up regularly for businesses dealing in cash, though for lending-only relationships, this is not an issue as it’s usually the banker who will travel these days,” Keating says. “Industry experience on the part of the banked is also deemed important by many businesses. This is handy, as you won’t need to explain how the trading cycle works or who the market is. The banker should understand what you are teling them and, more importantly, translate this understanding into banking need and service requirements.”
Aaron Greaves, CEO of Omniwealth, a Sydney-based financial consultancy, believes it is important to establish a strong relationship with your bank.
“Someone who understands their business and who is in their corner,” Aaron says. “The bank should have a strong understanding of where the business is heading and what the growth plan is of the business.”
Nuts and bolts
Understanding those key elements is only half the battle for small business owners. The other half is identifying the right banking product, and sourcing it from a financial provider that can tick all of the boxes in terms of locality, staff and industry knowledge.
Small business owners should also be mindful of the basics of the product they’re getting, by being canny about things like interest rates, transaction fees, payment flexibility and ease of day-to-day usage.
You will also be considering things like whether you need a basic business transaction account, or a cheque account, and what sort of access to ongoing credit your business might need. Are you looking for a provider that can offer a large business loan, or a smaller overdraft?
According to Greaves, you should be looking for things like common-sense lending. “Small business needs a lending institution that will consider ‘out-of-the-box’ lending scenarios, because not all business is the same, while still having an affordable interest rate,” he says. “Be on the lookout for a proactive banker who will offer solutions and products before they are needed by small business owners when times are profitable and when productivity is lean. Ulitimately, you want a banker who understands your business and industry so that they can see what’s normal.”
“In my experience, I’ve found that that all banks are basically the same, contrary to what they continually try to tell you,” explains Keating. “There are few credit policy differences, pricing ends up being relatively similar, and the products on offer my vary slightly in how they work. But at the end of the day, if you need money to run your business, any bank really can provide it to you.”
That said, it is still important to shop around and find the right product for your business. A business account suitable for a high-turnover retail business, with merchant facilities and payroll integration, will probably not suit a business in the agriculture sector, where merchant facilities aren’t required and turnover is steady.
What about the fees?
Most of the business account offerings from the major banks require the payment of a monthly or annual fee, just to keep the account open. These fees can be waived in some circumstances – for instance, the Commonwealth Bank Premium Business Cheque Account has no base maintenance fee, provided the account balance remains above $10,000.
There are a number of different fees that can be associated with business accounts, including cheque deposit fees and assisted transaction fees. With the ANZ Business Classic and Business Extra accounts, the monthly fees are smaller, but the ancillary fees are there. The ANZ Business Select Package has a higher monthly fee, but no actual ancillary fees.
A high return through interest rates might not be a a high priority for some businesses, but for others, where funds are kept for prolonged periods before being accessed, it makes sense to seek out a business account that offers significantly higher returns, which can help you make the most of the capital you have stored away.
For higher interest rates, small business owners need to look beyond the major banks, and into the more tailored solutions offered by groups like AMP, BankWest and RaboDirect. They all offer interest rates well above those of the Big Four on some of their business products.
If your business deals mostly in cash, like a small retail outlet, proximity to your local branch to deposit the day’s takings is crucial. However, for businesses that deal mainly in direct, electronic transations (such as EFTPOS and credit card facilities), that isn’t such a high priority – and an online banking product, such as ING Direct, could be what you’re looking for.
The Real World
Seeing your options on paper is a great place to start if you’re considering a change of service provider – but out in the real world, things can be quite different to how they seem in the marketing information that you’ve been provided.
Banking for small business is much more than just about the products and fees – and this is something that many banks are beginning to understand. Competition for banking business clients is incredibly fierce throughout the industry, and this is something that you can use to your advantage.
A recent report issued by Roy Morgan Research discovered that there is a deep level of dissatisfaction in the major banks throughout the business world. Close to 40% of business customers, on average, reported being lees than “Fairly Satisfied” with the current financial institution.
According to Keating, the majority of that dissatisfaction stems from the bank not understanding your business. “That understanding isn’t an institutional strength – it’s a personal strength. Having the right banker, at the right bank, can make the world of difference – and a good banker will go out of their way to not only get your business, but to keep it. All banks have the ability to service you,” he says. “The challenge for small business is finding the banker who wants to service you the most.”
The upshot of this is that small business owners should not be afraid of contacting a financial service operator, and asking them to do the hard work for you. Get them to tell you why their service is better, why they want your business, and how their operation will better suit your needs.
If you’re unhappy with the bank you’re with, shop around. If you can’t bear talking to the banks, Keating suggests talking to someone who isn’t a banker.
“Get someone who is not from a bank to help you structure your funding to best meet your needs,” he says. “Accountants, brokers (specialist commercial finance brokers, not home loan brokers) or financial advisers will give you a much better chance of obtaining the best structure.”
Bait and Switch
Switching banks is a bit like moving house – it can look a bit daunting at the outset, but if you’re organised and your affairs are in order, it can turn out to be surprisingly easy. Not to mention that it can come with a number of financial and support benefits.
“A lot of people think that their businesses are straightforward and up-to-date, or it’s not that big a deal that they aren’t. But if your paperwork and financials are in order, then in most cases switching banks just takes a little bit of time,” adds Greaves. “But if your financials aren’t properly in order, then the process can be extremely difficult.”
Returning to the moving house analogy, small business owners can run into drama the same way a disorganised, messy homeowner can when it comes time to move. If that’s the case, then you have two options: You can roll up your sleeves and do the hard work yourself, or find a specialist to do the heavy lifting on your behalf.
“The banker or broker will do most of the work and keep the small business owner updated,” says Greaves.
However, there’s more to changing banks than simply signing a few bits of paper. Keating explains that the simplicity or difficulty of the process also relies on several other key factors, including the risk profile of your business.
“Gaining a loan approval is hard work, in that there is a lot of negotiation, finding of information and continually updating,” he says. “Settling the loan – once it’s approved – is about signing mountains of paperwork and then going through and changing cheque accounts, notifying customers of different bank accounts, changing direct debits and merchant services.”
If the only thing holding you back from changing banks is the prospect of it having an impact on your day-to-day operations during the move, then it’s worth making a move, as you as you make the time to carry out the proper amount of research into your new bank choice first, says Greaves.
“The thing businesses need to realise is that there is interruption; however no small business I have seen has had financial trouble because of the interruption of moving banks.”