Bank charges: Unveiling the hidden costs of doing business

In the bustling world of Nigerian entrepreneurship, every naira counts. As a business owner, you diligently track your income, expenses, and profit margins, but a crucial aspect of your financial landscape often goes unnoticed: the seemingly small yet significant impact of bank charges. This article serves as a guide to understanding, categorising, and effectively managing these often-overlooked costs, thereby improving your bottom line.

Bank charges are not merely administrative overhead; they are an integral part of your business’s operating numbers. Accurately capturing and analysing these costs is essential for a clear understanding of your financial performance and for making informed decisions. The way you categorise these charges has a huge impact on your understanding of the health of your business.

Let’s begin with the positive side of the equation: the interest income that your bank provides you for keeping your money with them. This is a valuable benefit. This income is categorised as “interest income” and should be properly recorded under the “other income” category in your financial records. This seemingly small income is often not captured, which is a mistake.

Now, let’s delve into the expenses side. Bank charges encompass a variety of fees that you will likely encounter in the daily operation of your business. Everyday transactions such as stamp duty, account maintenance charges, transfer charges, and the associated Value Added Tax (VAT) are all part of bank charges. These are costs you incur to use the bank. These charges, as well as the charges associated with debit card and cheque usage, should be recorded under the “admin expenses” category. This is important because it is an administrative cost to operate your business. Other fees related to services, such as reference letters and account statements, should also be included in “admin expenses”. These charges can quickly add up, so diligently tracking them provides a clearer picture of your overheads.

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If your business uses loans or overdrafts, the interest paid on these financial instruments should be properly recorded as a “finance cost”. Understanding the interest rates is important for financial planning. This helps you assess the true cost of borrowing and manage your debt burden effectively. These charges tell a story about the overall operation of the business.

Don’t forget to capture the deductions on your Point of Sale (POS) transactions. These charges, previously discussed, are categorised as “POS charges” and fall under the “cost of sales”. This accurately reflects the costs associated with facilitating customer transactions and understanding the profitability of your sales.

The more you understand your expenses, the easier it will be to make a more profitable business. Keeping track of these charges can be as simple as a spreadsheet. This will help you identify any fluctuations or unusual increases in your costs. This awareness will lead you to make better financial decisions.

The final step is to review the statement regularly to ensure all transactions are well accounted for. You can also engage the bank to query an amount if it is not clear. By meticulously tracking these expenses, you gain a clearer picture of your business’s overall financial health. This knowledge empowers you to identify areas where you can optimise costs. A good understanding of your bank charges translates to better financial management and improved profitability.

Adeniyi Bamgboye, MBA, FCTI, FCA, FCCA, a dual qualified chartered accountant, tax expert, and policy analyst, is the managing partner of Empyrean Professional Services, an audit, business, and financial advisory firm dedicated to enhancing its clients’ business value. [email protected]