Paycheck Protection Program vs. Employee Retention Tax Credit
What should bridal shops consider when evaluating whether or not to apply for paycheck protection...
You read the Profit First book. You are inspired. You are ready to transform your bridal business from a cash eating monster into a money-making machine!
There is just one problem: You need a Profit-First-friendly bank. To help you decide on a bank, we will go in-depth on each of these primary considerations:
Over the years, hundreds of entrepreneurs have come to me to guide them in implementing Profit First. They fall into roughly two scenarios.
Typically, this conversion goes something like this:
Business Owner: I need this for my business. I owe $20K in taxes and I don’t even know where to begin to start paying myself.
Me: Let’s get your bank accounts open so that you are ready to hit the ground running when we have your Profit First roll-out plan in place.
Business Owner: Ok. I will schedule out a half day for that next week. Do you have a recommendation?
This business owner typically has their bank accounts set up within 1-2 weeks. They are allocating money across their accounts within 1-2 months. In month 2, they do their first Profit Allocation. In 9 months, their tax liabilities are paid and they have “extra” money in their tax account.
In a year, they’re ready to plan an exciting change in their bridal business such as expanding their team, or their space. Or, perhaps they are experiencing enough financial freedom that they can start working more on the business and less in the business.
Business Owner: I can see how this will be amazing for my business. I think we could skip the bank accounts and do this in Quickbooks or in spreadsheets.
Me: The bank accounts are important. Cash in the bank is the thing that really drives behavior. Spreadsheets get attention for about a week and then they get forgotten. And, if your financial statements were doing the job so far, we probably wouldn’t be having this conversation.
Business Owner: Ok, I see your point (tone is one that conveys skepticism mixed with compliance). Do you have a recommendation?
Over the next several months, I check in with the business owner to try to assist in finding a Profit First bank. They are very “busy.” (BTW: everyone is busy… it is just a matter of setting priorities). The accounts never get opened. The momentum fades. They give up, and decide that Profit First doesn’t work for them.
If I had a magic bank wand, I would wave it and open your accounts for you. Alas, of all my financial superpowers, that one has not yet been granted to me. As the business owner, you alone have the power to open your bank accounts. And, you alone have the power to completely bottleneck your Profit First implementation. Not trying to be harsh. Just telling it like it is.
Having said that, I want to give you as much information as I can to give you a running start.
Let’s talk about the ideal Profit First bank. Since you will have multiple accounts, you have a few extra criteria for finding a good bank (in addition to all the other stuff that you want to think about). I am therefore putting the three Profit First criteria at the top of the list, and then will walk you through all of the additional stuff you might want to consider anytime you are opening a business bank account.
Before I launch into describing these fees and other considerations, it is worth saying that good banking doesn’t necessarily have to be completely free. However, you want to make sure that the bank’s fee structure is compatible with multiple accounts in order to keep fees to a minimum.
Pro Tip: If you love your bank, they may be willing to work with you! Don’t take a bank’s published fees as a given. Many banks (and bankers) are interested in your business and are willing to work with you.
What it is: a flat monthly fee charged per account.
Why it matters: With five to ten bank accounts, monthly maintenance fees of $20 to $30 can add up quickly. Ideally, you want a bank that has no monthly maintenance fees.
What to do about it: If you must pay a monthly maintenance fee, try to see if you can apply it across all your accounts. If your only option is to pay a monthly maintenance fee per account, try to keep it at $5 per account or lower and make sure that you are not paying other types of fees. That way, your monthly bank service charges never exceed $15-$40/month.
Savings accounts are typically not subject to monthly maintenance fees. You can open your PROFIT and TAX accounts as savings accounts in order to minimize your monthly banking costs.
What it is: You are required to keep a stated minimum in your account (for example $1500 per account). If you exceed the minimum, you are charged a fee.
Why it matters: When implementing Profit First, some of your accounts will be drawn down to zero two to four times per month. Keeping money in the account just makes the system a bit more cumbersome to deal with.
Another reason that you don’t want to deal with minimum balance requirements is that when you multiply them across several accounts, they tend to mess with cash flow. Try this: Multiply the minimum balance requirement (for example $1500) by the number of accounts (say, five) and ask yourself if you are ok with the bank holding on to that much cash every month… and not paying you for it. In this case, the bank would be holding $7500.
What does the bank charge if you don’t maintain your minimum balances? Let’s say they charge $20. That means, you would be charged $100 per month if you needed access to that money.
Let me put it another way. If you really have all of that excess capital sitting around, why not make it work for you instead? If it was earning a 3% return, it would have made $18.75 in the same period, and I’m not even going to get into compounding interest! But I digress…
What to do about it: Be sure to ask if the minimum balance requirement is per account or if it is applied across all accounts. Sometimes the latter can be a great way to find a win-win option with your bank. Banks need their customers to keep money in the bank — that is why their products reflect that. You need reasonable bank fees. Negotiate accordingly.
What it is: Some banks charge a fee to make an external (or even an internal) transfer. Some banks just don’t have the capability to do external transfers at all.
Why it matters: With the Profit First method, you will make external transfers 2-4 times per month. You want those transfers to be free and easy to perform.
Profit First aside, free and easy external transfers are simply a usability factor. If a bank does not have a way for you to, at minimum, transfer money to external accounts that are in your own name, it is an indicator that they are not technologically up to date in other areas as well.
What to do about it: I can’t recommend working with a bank that can’t do external transfers. Consider yourself warned. If they charge for each transfer, you could ask to have them waived, but there is a risk that the fees will show up on your statement anyways. Probably not worth it.
What it is: Some business checking accounts limit the number of transactions you can make each month before the institution charges a fee for each transaction. This is especially common with free checking accounts.
Why it matters: You may think you are getting a “free” checking account, but be sure to read the fine print! If your company has a lot of monthly transactions, this type of account could get you into trouble.
What to do about it: A bank account that charges for excess transaction fees isn’t necessarily a bad thing. You just want to make sure that you are within range and that you aren’t going to exceed the limit too much on a regular basis. If you have no idea what your monthly transactions are, you can get a ballpark idea by running a Transactions by Date Report in QuickBooks.
What it is: Statement fees exist because it costs the bank money to mail out statements.
Why it matters: Statement fees only matter if you need a paper statement in your hot little hands. In the digital age, when most people have a digital filing system, paper statements are usually not necessary.
What to do about it: Make sure that you are opting out of receiving paper statements.
What it is: Some accounts limit the number of cash deposits you can make each month. They do this because it costs them money to process all of those bills and coins.
Why it matters: Cash handling fees matter for businesses that make daily cash deposits. If you don’t deposit much cash, you don’t have to pay attention to this fee. If you do, fees can quickly escalate if you don’t have the right account for your needs.
What to do about it: If you make regular cash deposits, choose a checking account that does not have cash handling fees, OR choose an account that can accommodate your monthly cash deposits.
What it is: The amount required in each account (or across all accounts cumulatively), to open an account. This is different from the minimum balance requirements.
Why it matters: You need to have enough cash on hand to deposit into each of the accounts. This is not necessarily a bad thing if you have the money. Opening deposits can be a great trade-off – a way to get accounts with little-to-no monthly fees while making the bank happy.
What to do about it: You are typically not required to keep your initial deposit in the account once you open it. To be safe, plan on losing access to these deposits for 2-5 days (some banks claim that they need to hold on to the deposits while they verify the security of the account). After that, if the deposit requirements are large, you can transfer them all over to your INCOME account to be distributed with your first allocation.
What it is: Technologically up-to-date banks play nice with cloud accounting products by integrating directly or through a third party (usually Yodlee). Cloud accounting products start with your general ledger (QuickBooks or Xero, for example), but can go far beyond as your needs expand, encompassing providers such as HubDoc, Receipt Bank, Gusto, and more.
Why it matters: Your bank may say that they are integrated with Quickbooks and have cloud accounting technology, but this does not mean the same for everyone. “Online Banking” is not the same as state-of-the-art-cloud-accounting that will save you hundreds or thousands of dollars a year in accounting costs.
Let me break it down.
QuickBooks (or Xero, etc.) integration comes in two forms. Bank feeds pull transactions directly from your bank so that you never have to log in to your bank to download transactions to your QuickBooks file. This will save your accountant time and it will therefore save you money. Sometimes banks will say that they are integrated with QuickBooks, but you must log on to their website, download a csv file, and then upload the file to your QuickBooks… for every account. Not cool.
What to do about it: When you identify a bank that you want to work with, ask your bookkeeper to verify that the bank has cloud accounting capabilities, including bank feeds. They will thank you for checking with them!
What it is: These are the services and functionality that you find on the bank’s website and on your phone. For example, online bill pay, statement and transaction download, mobile deposit capability, and so on.
Why it matters: You conduct most of your banking online. You need the tools to be able to move your money to where it needs to be in a timely and efficient way. Timely and efficient access to your financial data is important as well.
What to do about it: Scrutinize the bank’s website to make sure that the services they provide are the services that you need, and that you like their interface. If you can’t see their interface without opening an account, ask them for a demo.
What it is: A building that you can enter with live people who you can talk to.
Why it matters: A physical branch is important if you make cash deposits.
Otherwise, if a bank has good cloud accounting and online services, there is only one reason that you need a physical branch: Some banks require you to bring your documentation into the branch when you first open your business account. Not all banks require this.
The reason that most require this is that they have not yet built the infrastructure and procedures necessary to digitally accept and process the extra documents required for a business account (my best guess after many, many conversations with banks). But, they will probably tell you it is because they like to meet all of their customers face-to-face.
What to do about it: If there is a bank that you love, but no local branch, it never hurts to ask if there is a way to submit your application remotely. Just make sure they have mobile deposit capability.
What it is: The ability to solve problems as they arise.
Why it matters: They have all your money.
What to do about it: Call the bank’s customer service line and ask a few tough questions. See how far they are willing to go to help you out and what the attitude is of the person on the other end of the line. If this is really the last thing holding you back, ask friends or fellow business owners who have experience with the bank.
Don’t make the mistake of just reading reviews of your local branch online. These can be skewed towards a few people who had a negative experience or a bad day. When was the last time you wrote a review of a financial institution that did a good job?
What you pay for banking may change over the course of your business. A start-up should be paying as close to zero as possible. A mature business, on the other hand, may have increasingly complex banking needs, and/or transaction volumes, that justify an increase in banking service charges. In any case, you want to make sure that you are in an appropriate type of account for your needs in order to minimize bank fees.
Unfortunately, I can’t go into your bank and open your account for you.
Unfortunately, there isn’t yet a national bank that has figured out that they could make a fortune by just branding a Profit-First friendly option.
Unfortunately, it is a wee bit of a pain to open accounts at a new bank. But there really are harder things in life, like learning how to do yo-yo tricks.
The good news is that it doesn’t have to be that hard if you don’t want it to be.
Start with your current bank! Your current bank is the easiest option (unless you hate them). And they usually want to keep your business. Have a conversation with your banker and let them know that you want to keep doing business with them. You are looking to open a few more accounts. How can they set up the fee structure to best accommodate your Profit First implementation?
If that conversation doesn’t go too well, don’t fret. You have other options.
Relay Financial is the bank that I typically recommend to business owners who are implementing Profit First. Here is why:
Below are a few other banks that might be a good fit for your business if you determine that Relay Financial is not your first choice:
This step is optional. If you have all of the information that you need from the website and, say, past experience, then go ahead and skip to Step 3.
Talking to the bank serves two purposes. Firstly, you may want to get clear on any questions you have on fees, services, and/or technical functionality. Secondly, if you are really interested in a bank, but their published fee structure isn’t compatible with Profit First, a visit to the local branch with a copy of the book in hand might just work. I have seen it happen more than once.
Just. Freakin’. Do. It.
Here is what you will most likely need if you decide to go with a new bank:
You just overcame the single biggest hurdle in Profit First. You are now on the path to glory.
Now it’s time to implement. Here are two ways to get started:
1. Work with BridalVision — the only Profit First certified firm specialized in implementing Profit First for bridal stores. Learn more about our Profit First JumpStart program.
2. We built a Profit First tool in the BridalVision platform to help you determine your allocations and ensure a smooth rollout of Profit First. Sign in or register for an account to get started. Once you’re in, you’ll see Profit First as one of the tools you can use.
When I found the world of bridal stores, I found a community of business owners that were solely dedicated to the beauty and transformation of a moment in other women’s lives, but were sacrificing themselves to make it happen. I found loving people who would go hundreds of thousands of dollars into debt to make a moment in someone else’s life beautiful. Guiding bridal store owners to a financial future that does not ask them to sacrifice themselves, but rather, thanks them for the ways that they touch the lives of others has been deeply rewarding.
What should bridal shops consider when evaluating whether or not to apply for paycheck protection...