Building financial relationships

Just like you have a checking account for your personal use, it is best practice to have a separate checking account for business use. Your business checking account is the account where all your business expenses are taken out of and where all your business income is deposited into. Keeping all your business transactions in one place helps streamline your record-keeping process.  

You may also want to have a separate savings account just for your business. Ideally, your business will regularly allocate some money to savings so that it has its own reserve of emergency funds. The best savings accounts have no fees and no or small minimum amounts needed to open an account. Simply opening a savings account can be what you need to motivate you to continue to work on your cash flow and cost of care analysis and to increase your profits.  

When you are ready to set up your business checking and savings account, where do you go?  

Even if you enjoy your experience with the bank that you currently use for personal reasons, it is worthwhile to investigate what other banking options are available that might be more beneficial for your business use. There are rankings of the best national banks to use for small business bank accounts.  

The benefits of large, national banks are that they probably have a user-friendly, efficient online banking software, both via web and on a mobile app. They probably also have extended customer service hours. Moreover, depending on the bank, you could have more options for ATMs or branch locations. On the flip side, it is unlikely that you will receive free, personalized recommendations for your financial situation from a national, corporate bank. That one-on-one attention is usually best received at a local bank.  

Some individuals and businesses prefer to use credit unions instead of banks. Credit unions are nonprofits, whereas banks are for-profit corporations. Ultimately, this means that the financial institution can channel more of its profit into beneficial cost savings for account holders. For you, this could mean that you will generate higher interest on your account deposits or perhaps face lower fees if you mistakenly overdraw your account.  

Many credit unions offer expanded assistance for the smallest businesses. Sometimes, micro businesses (defined as a business with fewer than ten employees) are excluded from certain services at banks that are available for larger businesses, such as short-term, emergency financing. Credit unions may offer specialized services for micro businesses that are unavailable for those same businesses at banks.

You may also want to have access to a line of credit so that your business can stay afloat if an unanticipated cash flow crunch is encountered.  

When you are researching the financial institution that is the best choice for you, look for what short-term credit options are offered. If you needed a small loan tomorrow, how much money could you be eligible for, how much interest would you be charged, and how quickly would you need to pay it back?  

If you are a micro business, or a small business without a long history of ownership, you might find that a credit union might have more options for you than a large bank.  

Business credit cards are another option as a line of credit. Credit lines come with a high interest rate but offer a useful lifeline in times of unexpected hardship. Consider opening a business credit card that will help your business generate rewards, like cash back. Remember that credit cards are intended to help your financial situation, not harm it, and high-interest debt will be harmful. Although business credit cards should serve as one of your last options, they can be a critical tool for business survival if you experience unexpected circumstances.  

If you are a home-based, sole proprietor, you may be doing all your financials solo. If you are leveraging tools like a basic bookkeeping system and following good practices with record-keeping, this might be working well for you. As your child care program grows, having a bookkeeper to manage your financial records is critical to keeping your business’s financials on track.   

Knowing that a qualified financial professional is tracking your incoming revenue and outgoing expenses can give you peace of mind as a business owner. It can also allow you to focus more of your time managing the business and less time handling financials. Having a bookkeeper maintaining your records becomes particularly advantageous at tax time. A good bookkeeper will keep easy-to-understand financial records that will streamline the process of filing your business taxes.   

With time, resources, and patience, most sole proprietors can file their own annual taxes. However, whether you want to invest your time and effort into filing your own taxes is another question entirely. If you contract with a bookkeeper, they might be able to file your taxes for you or with you, depending on their qualifications. Otherwise, you might want to seek out a professional tax preparer to file your taxes for you.  

A qualified, reliable tax preparer with specialized knowledge about child care business taxes can be difficult to find. Child care businesses—particularly in-home child care programs—are a niche in tax law that can be understudied by accountants.  

The first step to finding a trustworthy accountant for your business is to inquire within your network of child care providers. Which financial professionals in your community have other providers had positive experiences with?  

The right tax preparer for you will be willing to review resources that you provide them pertaining to child care business taxes. Do not feel shy about presenting your potential tax preparer with this information—remember, you are hiring them to do a job for you. You should only work with preparers who are willing to learn about child care business taxes so that they can offer you the best service possible.  

Before you start looking for a tax preparer, decide how much you are willing and able to pay for your annual return. Tax preparation services can range from $100 to $1000 depending on the size of your small business and who you choose.   

Ultimately, if you speak with a few tax preparers and the one who is willing to learn, patiently explain, and return your messages is the most expensive of your options, it is likely in your best interest to work with them despite the cost. A high-quality tax preparer can help you to mitigate risk and maximize on your annual return. A tax preparer who is underinformed about child care businesses (or a poorer quality tax preparer in general) could put your business at risk of a costly audit or lead you to lose out on returns from deductions you can claim. The extra few hundred dollars you may spend annually on a high-quality tax preparer will likely save you money that you otherwise would part with as a result of suboptimal tax preparation services.  

Insurance agencies work with many different insurance companies. After learning about your situation, insurance agents will find out the cost of different policies and offer you the best price for your insurance needs. Insurance agents look for the best plan for you, no matter which insurance company it is from. On the other hand, an independent insurance company can only offer its own products.

The biggest benefit of using an insurance agency is saving time and money. As a small business owner, working with insurance agencies lets you organize your business and personal insurance policies and make sure you are getting the best, most affordable coverage for your needs. You will get personalized customer service at insurance agencies. Keep in mind that many insurance agencies do not charge fees to the customer, but some do.

Child care businesses have many liability risks. It is very helpful to work with a knowledgeable insurance provider who can connect you to the right insurance products for your business. Finding a well-informed, no-fee insurance agent who offers many different insurance products will provide a lot of financial security and peace of mind, especially for home-based sole owners.

If you have a large, profitable child care business, you might want to hire a financial planner. A financial planner will help you set financial goals, such as paying off debt, saving for retirement or college, or getting insurance. Financial planners will look at your personal income, debt, and savings. They will help you plan how to use your money wisely to build your future. They will also help you stay on track to reach your goals and adjust your goals as your life changes, such as when you have another baby or get ready to retire.

If you are just starting to organize your finances, it is normal to feel overwhelmed by the number of financial relationships to build. Investing your time in building your team of financial professionals will be worth it. Focus on one step at a time. Soon, you will have gathered your team of professionals who are there to help your business and personal finances succeed.

Disclaimer 

The information contained here is for educational purposes only and is not intended to constitute legal, tax, or financial advice.