In the wake of last month’s SVB crisis, many startups have been scrutinizing their banking institutions and accounts. For many, the crisis served as a wake-up call to not be complacent about where company funds are stored, how they are managed, or to what extent they are insured.
A couple of ways startups are reducing banking risk are by purchasing additional deposit insurance, and diversifying deposits across multiple financial institutions and instruments. Burkland recommends startups adopt a treasury management policy that is approved by the management team and board of directors.
If you’re considering switching or diversifying banks, there are some important steps you should take. This article provides a checklist to help you evaluate and select the best banking partners for your startup and a checklist to help you plan for a smooth transition.
Choosing the Best Banking Partners for Your Startup
- Risk – The SVB crisis underscored the inherent risks of banking for a new generation of business owners, and risk management needs to be top-of-mind when selecting a bank. One way to manage risk is to bank with large “too big to fail” banks (i.e., JPM, Bank of America). Another way is to select a bank that offers additional insurance over and above the $250K FDIC insurance. For example, Bank of America offers savings accounts insured up to $6MM, while First Republic Bank and Pacific Western Bank can insure deposits up to $150MM. Several other banks, like Citizens, Rho, and Brex, have similar offerings.
- Scalability – As a growing startup, your banking needs will change and evolve fast. Your bank should offer a wide range of financial products and services that meet your business’s current and future needs. This includes products like checking and savings accounts, loans, credit cards, and investment products. It also includes features like additional financial controls, compliance services, business intelligence, and extra deposit insurance.
- Customer Service – You should be able to get help from a person when you need it and know that your questions will be answered promptly and accurately. Once you’ve started to narrow down your list of potential banking partners for your startup, take time to read reviews from past and current customers, paying close attention to how customers rate each bank’s service.
- Convenience – Will you be conducting all of your banking online? If so, make sure you select a bank with robust online banking tools. Create a checklist of your common banking functions, and verify that you can easily perform them all online. If you expect to need in-person banking, look at things like branch locations, ATM locations, and hours of operation.
- Interest Rates – This is the rate of return you’ll earn on your business savings. Look for banks that offer high-yield savings accounts (HYSAs) with competitive interest rates.
- Fees – Before selecting any bank, compare fees like monthly maintenance fees and transaction fees.
- Value-Add Offerings – If you are interested or in need of value-add products or services, make sure to review these items as well (i.e., credit cards, lines of credit, personal banking/wealth management for founders).
Moving Your Startup’s Working Capital
Once you’ve selected the best financial institutions for your startup’s working capital:
- Open your new account(s).
- Set up your online access. You may need your Employer Identification Number (EIN).
- Transfer your funds.
- Disconnect your old bank account from your payroll provider, and connect your new bank account.
- Create a list of automated deposits and withdrawals, and switch them over to the new account.
- Provide customers with your new wire/ACH information as needed.
- Review office leases and similar contracts to ensure you remain compliant with any clauses related to things like a minimum bank balance.
- Set up your merchant account and revenue processing.
- Disconnect your invoicing/cash receipts, payroll, bill pay and accounting systems from your old bank, and connect them to your new bank account.
- Download all available statements from your old bank, and store them safely in your internal cloud. These could be required for taxes or investor due diligence in the future.
It’s essential to select the best banking partners for your startup. Along with your CFO and accounting team, your banking partners should offer service, support, and guidance to help you make sound financial decisions.
- A Sample Investment / Treasury Policy Template for Startups (PDF)📄
This sample can be customized for adoption by a Board of Directors and implementation by a startup’s management team.