7 Ways to Keep Your Small Business Finances Secure

If you have your mind on your money (or your money on your mind), you undoubtedly know that finances are at the heart of your business. Whether you're just starting out as a freelancer, or have been in business for years, it's important to take steps to safeguard your financial well-being. In today's increasingly digital world, banking and financial security are more important than ever.

The recent collapse of Silicon Valley Bank and First Republic Bank sent shockwaves through the banking industry. These institutions faced a dramatic downfall, due to a complex mix of external economic pressures, management decisions, and consumer behavior. The fallout was far-reaching, impacting not only their clients and employees but also casting a shadow over the broader economy. Their circumstances have re-ignited calls for increased regulation, transparency, and accountability. 

While you can’t singlehandedly prevent a bank collapse or recession, there are proactive steps you can take to protect your finances. Here are 7 things you can do to protect your finances and give you peace of mind as you focus on growing your business.

Choose the Right Bank

Opening a separate bank account for your business is an important first step–and choosing the right one is a critical decision. You’ll want to decide if you prefer a traditional or an online bank. While traditional banking has its merits, online banking is quickly becoming the go-to option for small business owners. With its convenience, lower fees, and advanced features, it's worth considering as you choose where to bank for your business. 

Regardless of which route you choose, one essential feature to consider is FDIC insurance. The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance, up to $250,000 per depositor, per FDIC-insured bank. When a bank has FDIC insurance, it typically means that even if the institution faces financial difficulties, your funds are safeguarded up to that amount by the government. This insurance coverage can help mitigate the risks associated with banking, offering an added layer of security for your hard-earned money.

Choosing a bank that is FDIC-insured can help protect your deposits, even in the face of unforeseen circumstances. This protection is especially crucial for self-employed individuals and freelancers who can’t afford to roll the dice on their finances. Make sure to verify the FDIC insurance status of any bank you consider—this information should be easy to find on any bank or financial institution’s website.

Keep Personal and Business Finances Separate

Having a separate small business bank account means you can create a distinct record of your business-related expenses and income. This distinction doesn’t just simplify your bookkeeping process. It can also come in handy come tax time, making it easy to identify deductible expenses, maximize your tax savings, and minimize the risk of errors or oversights.

Moreover, maintaining separate accounts can provide an additional layer of protection for your personal assets. In the unfortunate event of a lawsuit or legal action against your business, the separation of finances can usually shield your personal funds and property from being affected. By establishing this financial boundary, you may be able to mitigate the potential risk of losing personal assets or savings due to business-related liabilities.

Use Strong Passwords

You wouldn’t leave your house keys in plain sight on your front porch, right? Similarly, don’t make it easy to access your bank account. A strong password is a key defense against unauthorized access, so here’s how to make it count:

• The longer and more complex, the better: Craft a password that’s at least eight characters long and includes a combination of uppercase and lowercase letters, numbers, and symbols. This mix typically makes it harder for anyone to guess or crack your password.

• Get creative: Avoid using obvious choices like your birthday or pet's name. Instead, unleash your imagination and create a unique combination of characters that you can still easily remember. Remember, the more random, the better!

• Change your passwords regularly: Updating your passwords at regular intervals can add an extra layer of defense against potential security breaches. Consider setting a quarterly calendar reminder to change your passwords.

• Never reuse passwords across multiple accounts. This simple practice can help prevent hackers from gaining access to multiple accounts if they crack a single password.

You might come up with a password that’s as safe as Fort Knox, but it won’t do you any good if you can’t remember it. If managing multiple strong passwords feels overwhelming, consider a password manager. It can generate and securely store your passwords, making it a breeze to access your accounts while keeping them well-guarded. Many password managers have free accounts and will alert you if your password is compromised. 

Set Up Two-Factor Authentication

Two-factor authentication adds an extra layer of security to your online banking accounts. It requires you to enter a second piece of information (typically a code sent to your phone or email) in addition to your password. This additional step helps put another barrier in front of hackers, even if they manage to get your password.

Many banks offer two-factor authentication as an optional security feature. To enable two-factor authentication, log in to your online banking account and look for the security settings. Follow the instructions to set up two-factor authentication and choose the method that works best for you.

It may feel like a minor inconvenience, but it’s far easier than trying to remedy your finances after getting hacked. After all, inconvenience is often a small price to pay for peace of mind. 

Monitor Accounts Regularly

Monitoring your bank accounts isn't just about keeping your books in order and uncovering potential tax savings. It's a proactive measure that can help you spot and combat fraud before it takes hold. Keep a close eye on your account balances, transactions, and statements to quickly identify any discrepancies or suspicious transactions.

Set up alerts and notifications with your bank to receive real-time updates on your account activity. Many banks offer options to receive alerts via email, text message, or through their mobile banking app. This way, you can quickly respond to any potential issues and take appropriate action, such as contacting your bank to report unrecognized charges or suspicious activity.

Avoid Public Devices

Using public devices for online banking, such as computers in libraries or shared devices, can pose security risks. Public devices may not have the necessary security measures in place, such as updated software or firewalls, making them more vulnerable to hacking attempts and malware infections.

Instead, use your personal devices, such as your own computer, tablet, or phone. It can help to have up-to-date security software, including anti-virus and anti-malware protection, to safeguard against potential threats.

Stay Up to Date on Scams

Scammers and fraudsters have their sights set on small businesses and self-employed individuals, getting creative and employing sneaky tactics like phishing emails, fake invoices, and deceptive phone calls. As a savvy business owner, it's crucial to stay ahead of their game by staying informed about the latest scams and fraud schemes.

Be extra cautious when you receive unsolicited emails or unexpected phone calls. Always take as much time as you need to verify the identity of the sender or caller before sharing any sensitive information. Report any suspicious activity to your bank immediately, and consider contacting the appropriate authorities, such as the Federal Trade Commission (FTC), if you suspect fraud or identity theft.

Keeping your finances secure is critical for small business owners and self-employed individuals. By taking proactive measures to secure your finances, you can focus on growing your business with confidence and peace of mind.

This material has been prepared for informational purposes only.