How to manage your money as a business is a topic that’s always been important, but many founders were left vulnerable to the fall of SVB, having not done enough to insulate themselves from financial risk. “There’s a naive belief in Europe that banks are very secure, and the reality is, they’re not,” says Jessica Holzbach, cofounder and CEO of Pile, which offers treasury services for high growth startups.
In Sifted's Startup Life newsletter, we asked Jessica to give her top tips for startups on managing their banking setup.
Diversify cash across different accounts
It isn’t smart to have just one bank account, as you never know what might happen. If you forget one day to submit some documents, or you have a large, unexpected payment coming in, your account could end up getting blocked, even if only temporarily.
Set up two accounts: one for everyday operations where you can make regular payments for payroll or paying suppliers, for instance. And then a holding account where the majority of your money can just sit. Be sure to check the interest offering of the banks you choose — especially for your long-term holding account — to ensure your money grows over time.
It’s a good idea to choose a digital bank for day to day banking — which has a handy app and APIs that you can integrate — and then a ‘too big to fail’ bank, like Deutsche Bank, for the other account.
Do your research
When choosing a bank, do your research to find out where your money is actually sitting and which regulator is protecting the deficits. Finding this information out isn’t always easy, given the banking system is still very opaque. Either you can spend time going deep into the compliance documents of the bank yourself, or seek out a CFO-as-a-service to advise you. Ask other founders who they bank with and see what information they’ve been able to find out.
Bank credit ratings come in handy too, as they give a basic overview of a bank’s ability to stay liquid — which is basically a measure of the cash and other assets a bank has available to quickly pay bills and meet short-term business and financial obligations.
Be smart when choosing business accounts
There are a few things you should look into before onboarding with a new bank.
First, make sure to check the pricing plan of the business account and see what the bank charges for opening the account (usually a one off fee) and maintaining it (a recurring fee, either monthly or annually).
Call or send a message to the support team to see if somebody picks up. If you find yourself in a difficult situation — for example, you lose your phone and can’t access your account — you need to know that there will be someone on the other end of the line immediately.
Check whether the bank offers additional deposit insurance schemes — which basically guarantee that deposits up to a certain level will always be repaid if the bank holding them fails — on top of the €100k basis protection offered by the government.
Be wary of banks operating in different legal jurisdictions
It’s often unclear how banks operate in different countries and what the regulatory environment is like. If I wanted to bank outside of the European Union, I would first want to find out:
- What happens if the bank fails?
- Does the government step in?
- What other regulatory conditions could pose a risk to me and my finances?
Again, do your research, check out online reviews and look at the bank’s credit rating. If a bank has a C rating, I’d likely go elsewhere.
On the subject of... Managing your treasury
🕵🏽 Things to look out for. Here’s a helpful list of factors you should consider before opening a business account: from hidden fees to limitations on transactions.
🏦 Choose the right bank. If you’re opting for a digital bank, consider these criteria.
❓ Ask the right questions. You need to interrogate all aspects of the business account to ensure it has everything you require.
🔎 SVB saga isn’t over yet. HSBC may have bought out Silicon Valley Bank in the UK, but startups should still be vigilant of fraudsters, says Sabrina Castiglione, chief operating officer at payroll software company Pento.
