For Small Business, There is No Such Thing as One Size Fits All Banking


Editor's Note: In this blog we take a look at small businesses and the pain that many of them face with their online banking solutions. Small businesses are opening and evolving at an extremely rapid rate. However, the banking solutions that are available for small businesses simply aren't keeping up. Many small business owners are forced to use corporate solutions, or manage their finances in a consumer account. If financial institutions want to properly serve their small business customers, they need to provide a solution sized appropriately.

 I don't have much occasion to wear a suit these days. When Ifirst started out as an account supervisor at a large advertising PR agency, I wore one to work every day. Twenty-five years later, even when there is a meeting with a customer or prospect, typically the dress code is business casual.

However, I do keep a few suits handy just in case someone we are hosting or visiting prefers a more formal atmosphere. Of course, since I am not wearing a suit daily, the "fit" of this particular option in my wardrobe is not always as I would like when the occasion calls for such. Travel, season and other variables may leave me in a "tight" situation.

Many small business owners find this to be the case with their financial institutions. They often "run" their businesses using consumer banking products. Typically, this is because the treasury system offered by their banks or credit unions is too complex for their needs and no other offering is available that is tailored to the organizations' need.

However, running a small business from a consumer account is a tight fit. Features that a small business needs to compensate for the lack of financial expertise, e.g., entitlements, simplified money movement, automated reporting, etc., are seldom present in customer accounts. To make it work, the small business owner must seek additional services from other providers - typically not financial institutions - to piece together what is needed.

That is why almost one-fifth of all small business owners will leave their banks or credit unions in search of something better at another institution. Unfortunately, seldom is this search for "greener grass" successful. The fact is that few banks or credit unions offer small business banking that was built specifically for the situation most small business owners face when trying to keep their organizations financially healthy.

There is a specific set of needs related to small business that lacks the skills needed to manage their finances. They are well known and documented. On Thursday, October 20th, Christine Barry , the head of research Aite Group, will provide an overview of these needs and discuss how financial institutions can address them in a free webinar.

Christine regularly studies small businesses in order to understand what financial services they need to succeed. In a report last year entitled "Filling the Financial Management Gap in Small-Business Banking," Christine describes the factors creating the need small businesses have for assistance when managing their finances.

More than three-quarters of U.S.-based businesses generating less than $20 million in annual revenue manage their own finances without the help of an internal financial controller or account on staff. Further, most business owners lack financial expertise and struggle to create financial statements and forecast cash flows. This is no surprise, given that most small businesses are run by entrepreneurs. These individuals have ideas and are specialists in their fields; they are rarely financial experts. Regardless of their level of financial acumen, however, all businesses must effectively manage their finances to remain in business.

These conditions help explain why the failure rate of small businesses is so high. Owners are ill-equipped to handle the finances and distracted from their businesses' needs because this is so.

So what? Since 1995 two-thirds of job growth in the United States has come from these organizations, so improving the odds of success for a small business is an economic imperative. In addition, financial institutions are leaving money on the table by not providing the financial services small business require.

Today, the digital revolution provides the ideal context for banks and credit unions to harvest some of this potential while helping the small business owner focus more on the customers who help his business grow. To learn more, sign up to hear the latest results from Christine's research, including what steps you can take in the near term to keep small businesses loyal to your institution. 

You can register for that webinar here to learn more about how your financial institution might better serve small businesses.