There are plenty of resources available to business beginners, guiding them through a financial plan that will help their business plan get off the ground. Once those doors open, however, many of the lessons learned fly right out! Why? Well, it’s difficult to set aside funds you’ve worked hard to earn or resist pouring them right back into your business right away. If you used a comprehensive savings strategy to help you launch your business, though, why not continue to use one to keep it going?
As in any financial venture, there are both recurring and unexpected expenses that you’ll need to manage as a business owner. Keeping a savings account for your business is one way to budget for what’s to come, whether it’s taxes, sales fluctuations, emergencies, or future business goals. While this is certainly not a comprehensive list, we encourage you to consider the following reasons why a savings account is a valuable tool to keep for your business.
First Things First: It’s Okay to Start Small!
One myth that prevents people from opening a personal or business savings account is that it’s only beneficial with a large amount funding the account. While you will certainly yield a higher return with a higher account value, it is normal for the amount you keep in savings to start small and grow over time.
Regardless of what stage your business is in, it’s never too early—or too late!—to establish a savings account. However, the sooner you begin, the longer you have to grow and benefit from interest.
Did you know that SouthEast Bank requires a minimum of $50 to open any of our checking or savings accounts?
Getting Down to Business: Scenarios When a Savings Account Will Come in Handy
When It’s Tax Time
For business owners, tax season is all year round. The average small business pays approximately 20% of its gross income per tax year, and for a larger or more complex enterprise the tax rate can reach closer to 26%. In addition to business entity-specific and sales taxes, small business owners are responsible for industry-specific taxes, state taxes, and self-employment taxes as appropriate.
Businesses of all sizes must be proactive and consistent in their tax preparations in order to file efficiently while seamlessly maintaining their operations. According to a recent survey by Square, taxes are the primary impetus for businesses to maintain savings, comprising the largest portion—at 36.6%—of their savings budget.
When Your Product Is Out of Season
It is a rare business that experiences consistent traffic year-round. The majority experience peak seasons, when they can count on demand and cash flow to be high. On the flip side of that, however, are off-seasons, when sales are low and the business budget is stretched thin.
A healthy business savings account should include a reserve for just such occasions. Though it’s unlikely that you’ll want to maintain the same type of budget through periods of high and low demand, you can offset unnecessary cutbacks and prepare for busier stretches to come with savings you’ve already earmarked.
When There Are Issues With Your Location
In addition to monthly expenses, like rent or utilities, there are inevitable and expensive challenges that come from maintaining a commercial space. Renovations are rarely a one-time expense and average between $30 and $300 per square foot depending on the scale or design involved. Shutting down operations in order to complete these renovations can also affect the bottom line.
The longer your business occupies the space, too, the more likely you’ll need to replace broken facilities or furniture. This is true whether you are under lease or own the property your business occupies, though the bulk of responsibility will fall to the owner.
Location plays a significant role in the types of expenses you can expect–and therefore should save for in advance. For instance, do you encounter a lot of foot traffic due to proximity to other businesses or events? Do local features or weather play a role in how people access your location? Do you or your employees have particular needs in order to fulfill duties related to your business’ product or service? Knowing the patterns of how your space is situated and used will help you account for natural wear and tear, and a proactive savings strategy will help alleviate the weight of these costs when they arise.
Though “wear and tear” may look quite different for online businesses, there are similar concerns that ecommerce merchants will encounter nonetheless. You can expect to incur costs for setting up and maintaining your website, but what about adding new features or redoing your branding? What about when your online sales platform begins to feel clunky or unsafe for your customers and needs an update? These upgrades may add up to a significant investment that you should anticipate making every so often.
In Case of Emergency
Repairs and renovations are certainly big-ticket items for the average business, but can often be planned for in advance. What about those issues that are unexpected? If you or a family member are sick, lose a high volume of your product due to malfunction or supply chain issues, or you experience a weather-related emergency, how will you cover the costs?
It’s a business rule of thumb to keep three to six months worth of funds saved in case of just such complications. Though this may not be sufficient to handle all problems that come your way as a business owner, you should be able to rely on your strong savings habits (e.g., 10% of your monthly intake) to provide some peace of mind during times of uncertainty.
When There’s Room to Grow
The entrepreneurial spirit that got you into business in the first place is rarely satisfied with mere success. Your savings budget should hold space for continuing to dream big, whether that means growing your team, adding a new line of products, or expanding to a new location. It’s wise to think about this next chapter of your business journey as another new start and save for all of the potential setbacks that may come with this extension of your venture.
Though you may use part of what you’ve saved to increase your operations, it’s also normal for businesses to go beyond their liquid savings and seek financing from a trusted lender. Saving and earning interest towards future business goals will prove your viability as a “good investment” to lenders and may even earn you a better rate on what you borrow.
Don’t Discount the Value of a Business Savings Account
Owning your own business can be a pathway to personal satisfaction and financial prosperity. When your business is thriving, it’s easy to coast on your cash flow and put off a savings strategy. The savvy business owner, however, is diligent about budgeting for sunny days and rainy days alike.
Safeguard what’s most important to you in your business by utilizing a savings strategy that hopes for the best and protects for the worst. A business savings account is easy to set up, built to benefit you in the long term, and keeps your emergency funds accessible at a moment’s notice. Building a healthy mindset around including a savings account in your business budget will certainly pay dividends.
Learn more about business savings account options with personalized support from SouthEast Bank.
